Oz regulator issues report critical of major bank advisers’ advice

The Australian Securities and Investments Commission today published a detailed review of financial advice provided by Australia’s five largest,  vertically-integrated financial institutions that identifies a need for “improvements” in the way conflicts of interest in the sale of investment products are handled.

In its report, the regulator said its review, carried out between 2015 and 2017, had found financial advisers at the banks it studied – ANZ Bank, National Australia Bank, Commonwealth Bank, Westpac and AMP – were, on average, more likely to recommend their own companies’ products than those of other providers.

“Overall, 79% of the financial products on the firms’ approved products lists (APL) were external products and 21% were internal or ‘in-house’ products,” ASIC noted, in a summary of the report’s findings.

“However, 68% of clients’ funds were invested in in-house products.”

The research also turned up a “split” that existed between internal and external product sales that was found to vary “across different licensees and across different types of financial products”.

Best interests duty not complied with

In examining a sample of files to test whether advice to switch to in-house products satisfied the ‘best interests’ requirements that were recently introduced as mandatory in Australia, the researchers “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”, and that “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 in such situations, the regulator noted.

It said it is also planing to undertake “a series of regulatory actions in response to the findings” of its research, “to ensure customers receive advice that is in their best interests, is appropriate and prioritises their interests.

“Some of the required improvements to institutions’ business practices, such as reforms to adviser audit processes, are already under way.”

As reported, Australia adopted what is known there as the  “Best Interests Duty”, covering the advice and sale of investment and retirement products, as part of its Future of Financial Advice reforms. FoFA  came into force in 2013, and the regulator began enforcing the Best Interests Duty in 2016.

Advisory groups respond

Groups representing Australian financial advisers responded to the ASIC report today mostly by acknowledging that more needed to be done in situations in which clients are not being handled properly, although some, including the Financial Services Council, observed as an aside that ASIC had “adopted its own interpretation of how the best interest duty should be applied” and otherwise carried out certain aspects of its research in ways that the organisation thought might have been done differently.

It also pointed out that even ASIC had said that it expected the FoFA advice reforms would take some time” to “have their full intended effect on the financial advice industry”.

That said, “the FSC and its members welcome regulatory scrutiny to ensure that consumers are receiving the highest standard of advice, and to ensure conflicts of interest are managed in a way that puts consumers first,” it added, in a statement.

“We look forward to working with ASIC on its proposal to introduce more transparent public reporting on approved product lists.”

To read and download the 54-page report, entitled Financial advice: Vertically integrated institutions and conflicts of interests, click here. 

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