The Australian corporate watchdog has censured three financial advice firms after they misleadingly described themselves as “independent”.
The three firms – Wilson HTM, Citywide and iSelect Life – have since taken steps to remove or amend the claims of independence, the Australian Securities and Investment Commission (ASIC) said.
ASIC said both Wilson and iSelect take commissions and volume-based payments from product providers, while Citywide is aligned to Suncorp, one of Australia’s biggest second-tier banks and life insurers, and a major financial advice dealer group.
These facts preclude the advice firms form describing themselves as “independent” under the Corporations Act.
ASIC deputy chair Peter Kell said: “The independence of financial system gatekeepers such as financial advisers is an important issue for consumers and investors and may sway their decisions about their investments or their choice of adviser. Consumers must not be misled into believing that an adviser is independent and free from influence by commissions or other benefits or associations, when that is not the case.”
FoFA and independence
The question of independence is a hot-button issue in Australia, following a number of scandals in the financial advice industry, most notably that involving the Commonwealth Bank of Australia’s financial advice business.
This scandal led to the Future of Financial Advice (FoFA) reforms which, along with the UK’s Retail Distribution Review (RDR), have led the way globally towards transforming financial advice into a fee-for-service industry, away from the old commissions-based model.
While commissions have been banned on most investment products, most importantly those sold through superannuation, advice firms are still permitted to take commissions on life insurance products.
But even if – as looks likely – commissions on life insurance products are also banned, most advice firms will still be unable to call themselves “independent”, as the vast majority are part of “dealer groups” owned by the major banks and AMP, who also have their own investment, superannuation and life insurance products.