When ASIC conducted its detailed reviews between 2015 and 2017, it came as no surprise they found some damning results in relation to advice given by financial planners at our major banks. There is a requirement for advisers to act in their customers best interests called the ‘best interests duty’.
ASIC found that 75% of advice was non-compliant with the duty, with many customers told to switch their superannuation to a fund run by the adviser’s employer. The advice failed to demonstrate that customers would be in a better position, often a result of inadequate research or failure to take into account the customer’s whole financial position.
ASIC warned the wealth managers there was a need to improve how conflicts of interest were managed, and it would ensure compensation was to be paid where needed.
Peter Kell, ASIC’s leading chair, said “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”.
With the royal commission into misconduct of finance approaching this year, the report from ASIC is a further blow to the model of “vertical integration”, which refers to banks owning businesses that both create and distribute financial products to customers.
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.
The finding by ASIC 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.
The Financial Services Council (FSC), a peak body that represents the ‘for-profit’ wealth managers, said it would work with the regulator to improve the industry’s processes.
It highlighted a series of reviews that rule changes in financial advice, including banning wealth mangers from paying advisers commissions, and the creation of a public register for financial advisers.
Industry Super Australia, competitor to ‘for-profit’ 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,” said Matt Linden, director of public affairs.