"The financial advice arms of Australia’s biggest banks have come under fire again, with the corporate watchdog finding their advisers failed to comply with the best interests of customers in 75% of advice files reviewed." [The Guardian, 24 January 2018]
Australian Securities and Investments
Commission (ASIC), media
release, 24 January 2018:
18-019MR ASIC reports on
how large financial institutions manage conflicts of interest in financial
advice
An Australian Securities
and Investments Commission (ASIC) review of financial advice provided by the
five biggest vertically integrated financial institutions has identified areas
where improvements are needed to the management of conflicts of interest.
The review looked at the
products that ANZ, CBA, NAB, Westpac and AMP financial advice licensees 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
(APL) were external products and 21% were internal or 'in-house' products.
However, 68% of clients’ funds were invested in in-house products.
The split between
internal and external product sales varied across different licensees and
across different types of financial products. For example, it was more
pronounced for platforms compared to direct investments. However, 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. Consumers might choose advice from
large vertically integrated firms because they seek that firm's products due to
factors such as convenience and access, and recommendations of 'in-house'
products may be appropriate. Nonetheless, conflicts of interest are 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 will 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 noted 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 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.
Acting ASIC 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,' said Mr
Kell.
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.'
Background
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.
