Product bias under royal commission microscope

In an article by Powerwrap chief executive William Davidson written for ifa sister title InvestorDaily, Mr Davidson said vertical integration at the major banks would come under scrutiny in the ongoing royal commission.

“All eyes will be on how Justice Hayne will approach the issue of vertical integration in wealth advice and whether that has been in the best interest of bank clients,” he wrote.

“One conclusion could be that incentive structures are at the heart of the problem and have resulted in an overwhelming preference for in-house product.”

Mr Davidson pointed to ASIC’s approach to vertical integration and said Mr Hayne’s approach could be reflective of that.

ASIC’s Report 562: Financial Advice: Vertically integrated institutions and conflicts of interest found that advisers from five major financial institutions (AMP, ANZ, CBA, NAB and Westpac) had only fulfilled best interests duties one in four times (25 per cent of the customer files reviewed).

“The royal commission has virtually unconstrained power to investigate how actual product recommendations can be so heavily skewed to in-house bank-owned product,” Mr Davidson said.

“It is not going to be a pleasant Easter for the banks as they prepare to defend their past practices in wealth advice.”