A report released by ASIC last Wednesday found 68 per cent of client funds across the licensees owned by AMP, ANZ, Commonwealth Bank, NAB, and Westpac were invested in in-house products.
Commenting on the regulator’s findings, Stockspot chief executive Chris Brycki said the figures were to be expected.
“ASIC’s findings in its review of financial advice that ‘conflicts of interest are inherent in vertically integrated firms’ are unsurprising but a step closer to acknowledging the financial industry needs to change – now,” he said.
“There needs to be a clear delineation between those producing financial product and those selling them, without separation alongside a flawed remuneration system, the ultimate loser is always the end consumer.”
Mr Brycki said it was important that investors receive “fair and unbiased financial advice”, but many are instead recipients of “product pushing by sales people”.
“We need urgent structural reform in the banking and financial industry to fix the problems caused by the vertical integration of banks and their dominant market power,” he said.
“We need to ensure that consumers are protected, advisers are better educated and incentives are aligned to promote the right types of behaviour.”
The Financial Services Council also issued a response to ASIC’s report, questioning the approach used by the regulator in its investigation into product bias.
I am not sure what ASICs agenda is these days. Do they want people to get financial advice or not? We all know that a wrap is an administration service and has to be competitive to keep going and as for product investment, so long as it performs well against competitors the clients will be happy or they will want to get out. Best interest duty has covered all of this. Ok there is an APL but usually these are pretty broad and include both the dealer group products and others. Again, these articles are just causing the financial planning industry grief and it will be at the expense of those seeking advice as there will be no one wanting to come into the industry in future. Wake up ASIC you are not fixing anything. We have an ageing population and they need advice and you are spreading misinformation to the public and making them scared of something they know little about. Shame on you – do your job ethically. The industry funds must be laughing at all of this eh! Time for more escalator adds in my opinion. Tax office would like it too – less SMSFs to regulate if they all go into industry funds!
What a waste of time and effort this argument is.
Does the medical practitioner table the range of treatments available, detailing the advantages, disadvantages, costs, success and failures?
Does he disclose incentives associated with prescribing one medicine over another?
How about referrals to pathology labs – no disclosure of rewards or linkages?
Why get worked up into a froth on something that is being blow out of all proportion by regulators seeking to justify their positions and politicians and media looking for easy publicity.
This discussion fails to address a key point which is the Administration Fees charged by Platforms on external managers relative to the in-house manager. External managers are disadvantaged immediately as the vertically integrated group seeks to funnel cashflow into their own products. Let’s look to level the playing field and make Admin Fees payable on FUM size only, and not by manager.
The vertical integration is not new. How about horizontal integration where a planning firm recommends that the client set up a SMSF via their own in-house accounting practice (set and ongoing costs are greater than using a stand alone firm)? Further, the planner recommends that the client use a solicitor and mortgage broker who are also owned in-house? What’s the difference? Is it how they are paid, or that it is more easily identified as being in-house? perhaps the issue is more of Ultimate Beneficiary disclosure and bring back the “good ol’ days” of larger font for the Licensee on letterhead, business cards and websites?
So by ‘in-house products’ do they mean platforms or underlying investment fund?
So if I was with CBA for example and used CFS Platform but put 100% of FUM into external funds (i.e. Perpetual, Platinum, etc) would that count as ‘in-house’?, or do they mean if I put 100% of the FUM into CFS Balanced within a CFS platform?
Dont expect ASIC to understand the difference…
I suppose when your only tool is a robot, every advice discussion looks like a product selection choice.
Exactly JG. “Roboadvice” is just a trendy “fintech” word for online product distribution. Very little real advice involved.
Did ASIC review whether there are any merits to vertical integration ? Economies of scale, robust manager reviews and accountability, balance sheets to underwrite advice ?
I’ve had many clients in the past who were happy that the advice i was recommending was backed by the CBA
Agreed Don. Love your work!
While this is clearly a satirical comment, Don’s clients would have been very happy the advice was backed by CBA who then stumped up the $ to fix it. If it had of been a small self licensed firm the clients would have done their dough.