I recently came across the article below that discusses the results of an ASIC review in financial planning advice of bank owned planners. It’s frightening:
Most big bank planners fail to act in their client’s interests – ASIC
Most financial planners at major banks and AMP failed to act in their customers’ best interests when advising people to put their retirement savings with an in-house superannuation fund, a damning review has found.
And for one in ten customers, that advice on super left customers in a “significantly worse financial position”, the Australian Securities and Investments Commission said.
The regulator on Wednesday said detailed file reviews between 2015 and 2017 had found financial advisers at ANZ Bank, National Australia Bank, Commonwealth Bank, Westpac, and AMP, were more likely to recommend products manufactured by their parent companies, as ASIC also flagged concerns about the quality of advice.
When it looked specifically at customers who were advised to switch their superannuation to a fund run by the advisers’ employer, ASIC found 75 per cent of this advice was “non-compliant” with the “best interests duty.”
That duty is a requirement for advisers to act in their customers best interests.
The non-compliant advice failed to demonstrate that customers would be in a better position, often because it was inadequately researched, or did not take into account the customer’s position, ASIC said.
Ten per cent of the advice on super left customers worse off, due to higher insurance premiums than necessary, or higher superannuation fees, it said.
ASIC warned the wealth managers there was a need to improve how conflicts of interest were managed, and it would ensure there was compensation paid where needed.
”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’s acting chair, Peter Kell said.
Ahead of this year’s royal commission into misconduct in finance, the report is a further blow to the model of “vertical integration,” which in banking refers to banks owning businesses that both create and distribute financial products to customers. ASIC said conflicts of interest were “inherent” in veritcally-integrated firms.
NSW National Senator John Williams said it was time for further action to deal with concerns about vertical integration, which he said were not completely addressed by Future of Financial Advice (FOFA) reforms.
“Vertical integration is something that FOFA did not address, and I believe it’s time it should be addressed,” Senator Williams said.
ASIC also found advisers were far more likely to put customers into products manufactured by the advisers’ employer, despite presenting consumers with external products as an option.
It found that 79 per cent of the financial products on “approved product lists” were manufactured externally, but 68 per cent of clients’ money was invested with in-house products.
The chief executive of the Financial Planning Association, Dante De Gori said it was “completely unacceptable” that one in ten customers files reviewed had provided advice that left people worse off.
“We are very concerned by this finding and think it demonstrates that though there’s been progress, more progress is needed,” Mr De Gori said.
ASIC’s finding that three quarters of advice was “non-compliant” with the best interests duty suggested the licensees had not taken enough steps to promote change in their internal processes, he said.
The Financial Services Council, which represents for-profit wealth managers, said ASIC had found files to be “non-compliant” based on “its own interpretation” of how to apply the best interest duty, without consulting advisers or consumers. All the same, the FSC said it would work with the regulator to improve the industry’s processes.
The peak body also highlighted a series of reviews and rule changes in financial advice, including the banning wealth managers from paying advisers commissions, and the creation of a public register for financial advisers.
“ASIC has acknowledged in this review that these reforms have resulted in an improvement in the quality of advice and expects that it will take some time for all reforms to have their full intended effect on the financial advice industry,” it said.
Industry Super Australia, a competitor to for-profit super funds, said “hard questions” needed to be asked about banks’ role in the compulsory superannuation system.
“The report proves the need for super nest eggs to be protected from the banks,” director of public affairs, Matt Linden, said.
“It should shock consumers and policy makers that a staggering 75 per cent of super advice did not comply with the best interest duty.”
So what can you do about it? Well, we have a Royal Commission currently working through the issue and with lots of time and a bit of luck some things may well change over time (but don’t hold your breath). For me the obvious answer would be to find a non bank aligned financial planner and only pay for advice on a time spent basis. Make sure that the planner is truly independent and doesn’t get any trailing commissions from the product issuer. This way he gets paid on a time spent with you basis (just like your accountant and lawyer) and he has no interest putting you into funds that are not necessarily in your best interest. This should help but maybe there is an even better solution:
I always have issues with the normal advice you get from the financial planning community if bank aligned / owned or not. They usually favour a long term buy and hold strategy of a nicely diversified portfolio with lower downside (that’s great) but also significantly lower upside (that’s not so good) and they tend to hold this portfolio though a bear market and will usually not adjust it. So, I think that it’s best if the investor takes control of their own funds (super or otherwise) and educates himself, learns about various financial instruments and learns how to properly invest in the markets. This would then be a more active investment strategy, going from fully invested in growth shares to fully into cash (or even short indices or individual shares) in a bear market. Learning the tools of the trade will take some time and applying it on a regular basis (let’s say 10 minutes a day 5 days a week) takes some time and effort but the rewards can well be worthwhile all this work. On top of that the investor is now totally in control of their own financial destiny and can only blame himself if things go wrong. More often than not, not relying on (questionable) advice will be cheaper in the long run.
Well, that’s my take as an educator in financial markets (but you would have guessed that I would argue like this). Now up to you to decide if an independent financial planner or a do it yourself approach after proper education and mentoring is the right path for your financial well being.