Australians remain confused about financial planner independence while the “Big 6” financial planning groups continue to show an overwhelming preference for their own products when advising clients.
These were two findings of a report – Superannuation and Wealth Management in Australia – recently compiled by Roy Morgan Research.
The research concluded that these two ongoing issues have contributed significantly towards the overall lack of trust by the public in financial institutions generally and financial advice in particular.
An earlier Roy Morgan Research survey in March 2011 found that only 28 per cent of the population rates financial planners as either “very high” or “high” in an ethics and honesty category.
However, it is independence, both real and imagined, that remains a key battleground.
“The major licensee groups owned by one of the Big 6, but branded differently to the parent, continue to be largely viewed as independent by consumers despite their ownership, such as Garvan (51 per cent of members view it as independent), RetireInvest (45 per cent) and Hillross (43 per cent),” the research found.
The three are respectively owned by the NAB / MLC, ANZ and AMP groups.
Things are unlikely to improve in the short-term with even advisers tied to the big players often perceived as independent.
“With the recent takeover of Count Financial by the CBA, there is likely to be some confusion as to their status if their name is retained,” said the report.
“It is interesting to note however, that even when the planner comes from a major fund manager, there is confusion over the issue of independence, with a large proportion of AXA and AMP members (33 per cent and 30 per cent respectively) considering them to be independent.
“In the case of planners coming from one of the major banks, the position appears less confusing to their members, as only a very small proportion consider them to be independent.”
With each of the “Big 6” financial planning groups associated with a major funds management group, Roy Morgan Research also looked at the proportions of superannuation products obtained through these financial planning groups that invested in funds that were in the same group.
“Consistently over the past four years, these financial planning groups have been allocating over 70 per cent of their members products into their own managed products,” it said.
“It is important to note that a proportion of these products are in fact, master trust or wrap accounts, which are likely to include funds that are managed by external managers.”
AMP (78.9 per cent) have the highest proportion of their members’ products being directed to their own products in the latest period (down from 83.3 per cent 12 months ago), followed by CBA/Colonial with 76.3 per cent (a 2.7 per cent increase).
While it remains to be seen whether the Future of Financial Advice (FoFA) legislation will have any impact on these numbers, as the large licensee groups are generally restricted to recommending funds from their Approved Product Lists, the report concluded that this issue is likely to receive increased attention in future.
For more information on the Roy Morgan report, click here.
The first thing to note is that whilst advisers linked to institutions recommend their own products, this is typically the administration platform rather than the investment products. As the administration platform has no bearing on performance and is more akin to a service than a product I, as an independent adviser, see no issue.
The greater concern is that the institutions continue to see advisers as product salesmen rather than advisers.
In my opinion the argument that if you go into a Ford dealer you expect to be sold a Ford is the weakest of all arguments to rationalise advice linked to product providers.
Consumers go to car dealerships expecting that the salesman will try to sell them one of their cars regardless of whether their car is right for them or not. Furthermore, they expect that the salesman will try to up and cross sell them. They don’t go and see a doctor expecting to be sold a surgical procedure. If they require a surgical procedure they don’t expect to be up or cross sold. The same analogy should apply to financial planners. That is, consumers should expect that financial advisers will advise based on their needs not sell products.
Just as you’d expect that a lawyer would use their own precedent document for deeds, wills etc you would expect a CommBank adviser to use CFS, however, they should expect that the adviser will have sufficient flexibility to enable them to recommend investment and insurance products that suit their needs.
Having said that, just like doctors, lawyers etc… it is reasonable that financial planners will sell their advisory services.
Fully agree with Jamie. Financial Planners need to decide whether they want to be seen as being like car sales persons or professionals.
“As the administration platform has no bearing on performance and is more akin to a service than a product I, as an independent adviser, see no issue.”
Admin fees reduce investment returns so the higher the fees the lower the returns; so your comment about “no bearing” is wrong Jamie.
Advisers are flogging their own platforms when there are lower cost options out there to recommend, but you have no issue with this?
Advisers have got the flexibility to choose what they want but Andrew’s article (which is excellent by the way, keep up the great work Andrew, more of this please) is point out that they don’t exercise this flexibility, why? Because they’re glorified salesmen at the end of the day.
I wonder what percentage of client funds Industry Fund advisers direct into Industry Funds or am I naive in thinking that the same standards will be applied to them?
Who comissions these useless bits of research at a time when markets have been shot to bits over the last 4 years
. What did you expect the public to say – my adviser is a an outstanding citizen who managed my affairs so well that i can retire before i turn 80.
The public also doesnt trust the goverment , their local council , real estate agents , the AFL , ASIC , banks , Insurance companies and news paper jounalists just to name a few other areas.
Give us all a spell with this sort of rubbish .
Interestingly, the UK equivalent of FOFA also requires advisers to state very clearly if they are able to offer conflict-free, independent advice, or if they are in some way “restricted” by such things as the policies of the ultimate owner of the advisers’ business. Nothing wrong with an adviser largely selling the parent’s products, as this doesn’t mean they aren’t great advisers and/or don’t have the client’s best interests at heart. As others have noted though, its a matter of disclosure: i.e. they are not independent.
Part of the reason we have this current industry structure/dynamic is the control the Big 6 exercise over advisers through their control over the gateway to products, i.e., through their platforms. The good news (disclosure: self-promotion alert) is that there are now viable, low-cost independent platforms able to offer advisers and their clients a wide choice of investment products untainted by any conflicts of interest. Our forecast is that FOFA plus the availability of independent platforms like Powerwrap will lead to an increase in the share of advice that is genuinely independent.
Andrew Varlamos
CEO
Powerwrap
Another reason most fund flow is into licensee platforms & products is that the licensee fees paid by aligned practices are usually much less when the in-house platform is used exclusively that is where there is a choice is actually made available. Also, BOLR arrangements are still common for many established practices which discriminates heavily in favor of licensee product. How do these inducements sit with soft dollar, open disclosure and fiduciary obligations?
If I want to buy a BMW I go to a BMW dealer and not a Mercedes dealer. I do not expect the Mercedes dealer to sell me a BMW.
Why can’t you have the same with the Big 6. Is this not the point of the FSG? To disclose who you are dealing with.
Why this fixation with independence? Just state I am the man from AMP. I want to sell you an AMP policy or investment plan. You decide if you want one. We already make our own choices in respect of homes and cars then why not life insurance and investments.
If you want advice from some one that is not owned by a provider then come to me.
This report is not surprising at all. It clearly highlights the serious conflicts of interest as a result of the ‘Big 6’ being allowed to own financial advice businesses and manufacture their own products. The report makes it obvious that the ‘Big 6’ only own advice businesses as a means to distribute their own products. Any wonder less than 30% of consumers feel financial planners are honest and ethical when so many planners are trapped in a product-flogging environment. Unless the ‘Big 6’ are prevented from manufacturing their own products or owning advice business, a conflict of interest will always exist and consumers will be forced to track down independent planners to ensure they get advice that is in their best interests.
Surely there are no surprises in this report. The intriguing issue is whether “Big 6” owned groups that are directing about 80% of clients’ funds to their in-house products and services will be deemed to be discharging their FOFA “Best Interest” responsibilities. Over to you ASIC!