ASIC recently conducted a review of the financial advice arm of Australia’s five largest banking and financial services institutions on how they administer the conflict of interest in providing financial advice whilst also producing their own in-house financial products.
In crude terms, the issue ASIC was looking at was this – can you give advice which is in the best interest of each individual client, while at the same time being owned/employed/controlled by a company that makes money by selling it’s own financial products?
If we put this same issue into another profession, the issue might be this – can a doctor that is employed by a pharamceutical company and gets paid a bonus for selling medicine her employer makes, give objective advice to her patients?
Out of the 200 files* analysed from Commonwealth Bank, Westpac, ANZ, NAB and AMP, 75% of customer files did not comply with the best interests duty and its related obligations. ASIC mentions two areas in particular where the adviser had not demonstrated that they: a) sufficiently researched and considered the customer’s existing financial products; and/or, b) based all judgements on the customer’s relevant circumstances.
Out of this group, ASIC found that 10% of these clients had been left ‘significantly worse off’ as a result of the advice provided. This is a blatant failure of those financial advisers. Their offer to the world ought to be to help improve the financial position of their clients, yet they actually left their clients in a worse position as a result of their advice.
“We commonly saw the unnecessary replacement of financial products, where advisers recommended that customers switch to a new product when their existing product appeared to be suitable to meet the customer’s needs and objectives,” ASIC said in its report.
The report also shows that despite only 21% of in-house products being on the advice licensees’ product list, 68% of customers were having their money invested in the bank’s own products rather than external ones.
It is a worrying sign when clients are receiving skewed advice in favour of selling in-house products as opposed to external products when financial advisers have a finite list of possible investment options.
How to tell if a financial adviser actually works for a bank? Search the name of the financial adviser at ASIC’s moneysmart website and if there is a bank listed next to “Controlled by”, you might want to look elsewhere.
Align Financial is a privately owned financial planning company, meaning we are not controlled by any bank and are perfectly placed to give advice which is in YOUR best interests, not ours.
* To the best of our knowledge Align Financial was not part of the ASIC review.
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Disclaimer: This post has been prepared for general information purposes only. It is not specific advice to any particular person. You should consult an authorised Align Financial adviser before making financial decisions. Align Financial | Financial Planner Northern Beaches | Servicing North Narrabeen, Narrabeen, Mona Vale, Elanora Heights, Newport, Avalon, Palm Beach | Enquire with us Online