Advisers working against customers’ interests, ASIC

by Kelly Gregor25 Jan 2018
An Australian regulator’s review of ANZ, Westpac, AMP, CBA and NAB’s financial advice offerings has identified areas where improvements are needed to manage conflicts of interests.

The Australian Securities and Investments Commission (ASIC) looked at the products the five lenders were recommending, and at the quality of the advice provided on in-house products.

The review was part of a broader set of regulatory reviews of the wealth management and financial advice businesses of the largest banking and financial services institutions as part of ASIC's Wealth Management Project.

The review found that, overall, 79% of the financial products on the firms' approved products lists were external products and 21% were 'in-house' products. However, 68% of clients’ funds were invested in in-house products.

ASIC found, in most cases, there was a clear weighting in the products recommended by advisers towards in-house products.

ASIC noted that vertical integration can provide economies of scale and other benefits to both the customer and the financial institution. But that conflicts of interest were “inherent in vertically integrated firms”, and these firms still need to properly manage conflicts of interest in their advisory arms and ensure good quality advice.

ASIC announced it would consult with the financial advice industry (and other relevant groups) on a proposal to introduce more transparent public reporting on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business.

ASIC added that any such requirement is likely to cover vertically integrated firms beyond those included in this review. The introduction of reporting requirements would improve transparency around management of the conflicts of interests that are inherent in these businesses, ASIC said in a statement.

ASIC also examined a sample of files to test whether advice to switch to in-house products satisfied the 'best interests' requirements. ASIC found that in 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients.
Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position. ASIC will ensure that appropriate customer remediation takes place.

ASIC acting chair Peter Kell said that ASIC is already working with the major financial institutions to address the issues that have been identified in the report on quality of advice and management of conflicts of interest. “There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes, and the results of this review will feed into that work.”

ASIC is already working with the institutions to improve compliance and advice quality through action such as: improvements to monitoring and supervision processes for financial advisers; and improvements to adviser recruitment processes and checks.  

ASIC will continue to ban advisers with serious compliance failings.

ASIC highlighted that the findings from this review should be carefully examined by other vertically integrated firms. 'While this review focused on five major financial services firms, the lessons should be considered by all vertically integrated firms in the financial services sector.' 

The review took place during 2015 to 2017. The licensees included as part of the review were:
  • AMP: AMP Financial Planning Pty Limited and Charter Financial Planning Limited;
  • ANZ: Millennium 3 Financial Planning Pty Ltd and ANZ Financial Planning;
  • CBA: Count Financial Limited and Commonwealth Financial Planning Limited;
  • NAB: GWM Adviser Services Limited and NAB Financial Planning;
  • Westpac: Securitor Financial Group Ltd and Westpac Financial Planning.

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  • by Nigel Tate 25/01/2018 1:45:12 p.m.

    If the FMA are still wanting to look at what happens overseas to avoid making the same mistakes here, this would be a great place to start. The concern though is ASIC are “in discussions with vertically integrated businesses” sounds very much like code for business as usual.

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