Yesterday the Australian Securities and Investments Commission (ASIC) declared it had found “multiple instances” of clients of vertically integrated advice businesses being charged fees where no services had been provided; and ANZ announced it will reimburse as many as 8500 clients of its Prime Access advice business who have been charged for services the bank didn’t actually provide.
The Prime Access fee-for-advice model was established in 2006 in response to a survey of 4000 ANZ customers who said they found commissions “confusing”. At the time, ANZ promised:
• priority access to a qualified and experienced ANZ financial planner
• proactive advice and ongoing reviews of their financial plan
• education on economic and regulatory issues that may affect their investments, and
• a range of discounts on other ANZ banking and insurance products.
ANZ promoted Prime Access as a “fee-for-advice” model, rather than a”fee-for-service” model; a subtle distinction, perhaps, but one that now looks prescient, given that no service was actually provided. ANZ said then that its customers “will be able to work with their financial planner to select the level of service that is most appropriate for them” – a level that evidently didn’t actually include the option of “nil”.
Consumer group CHOICE described ANZ’s predicament as an “epic fail on advice”.
When vertically integrated advice business – in this case, essentially, the big banks – aren’t giving inappropriate or incompetent advice, it seems they’re giving no advice at all. So far the only member of the Big Four not to have publicly acknowledged advice shortcomings is Westpac, and it is inconceivable that it’s immune from the sorts of issues that have plagued its competitors. It surely must be actively assessing its position and potential liability. The only questions to be answered then are how many of its cuustomers are affected, and what has it cost them?
ANZ’s admission and ASIC’s statement are clear examples of the issues the opt-in provisions of the Future of Financial Advice (FoFA) are designed to prevent. They obliterate the position of critics of opt-in who see it as an unnecessary cost impost. The industry clearly can’t police itself on this issue, and it’s got no one else to blame for being hit with regulation it doesn’t like.
Breach of code of conduct?
Second, if those clients’ advisers are members of the Financial Planning Association (FPA), then the advisers are prima facie in breach of the FPA code of conduct, which says, in effect, that an FPA member shall not charge a client a fee where no service is provided in return. Their conduct warrants an investigation, and possible sanction.
(As an aside, the FPA is still seeking to have its code approved by ASIC so its members do not need to comply with the opt-in provisions of FoFA – because the code itself contains provisions that achieve the same effect as opt-in.)
And that’s a completely separate issue from action ASIC itself may take – though I wouldn’t hold my breath waiting for that, necessarily.
The fact that carry-on of this kind is still happening just continues to make financial planning look like a venal, sales-driven business that rides roughshod over consumers’ interests and any notions of professional conduct. It undermines trust. It calls into question again the validity of the vertically integrated advice model or, at the very least, the competence of those models’ executives to manage the businesses. ASIC wants additional powers to take action against the executives of these businesses, not just the advisers themselves. Give it to them; and let them go for it.
Coincidentally, tooling around on another publication’s website (not an Australian one) yesterday, a couple of mouse clicks led to the home page of an outfit called Financial Engines.
This business was co-founded by William F Sharp. Quick history lesson, for those who need one: Sharpe won the 1990 Nobel Prize in economics; he’s an emeritus professor at Stanford; he jointly developed the capital asset pricing model (sometimes called the cap-M model); and he developed the Sharpe ratio, used to measure risk-adjusted investment returns.
Kind of a big deal
In short, Sharpe is kind of big deal in the investment world. But that’s only one of the reasons that financial planners should be aware, and wary, of what Financial Engines and other businesses like it are doing.
Financial Engines manages about $US100 billion ($128.7 billion). It will manage a workplace account for an individual if the account balance is as little as $5 – yes, five dollars.
But the most striking aspect of Financial Engines is that it provides services – “investment help”, it calls them – to nine million individuals. That’s nine million people getting advice and investment help from an online service, and not sitting across the desk from a traditional financial planner.
Eventually, when service is poor or non-existent, when an industry consistently ignores the interests of its customers, when “professionalism” and higher standards are paid only lip service, consumers will simply vote with their feet and move to better alternatives.
As Financial Engines illustrates, those alternatives are already out there, ready and waiting.
