AIOFP goes straight to parliamentarians on QAR
Industry superannuation funds which for years criticised the vertically-integrated advice model utilised by the major banks are now guilty of the same conduct, according to the Association of Independently Owned Financial Professionals (AIOFP).
In a document sent to all members of Parliament as a counter to the Government’s approach to the Quality of Advice Review (QAR), the AIOFP credited industry super funds with having “favourably changed the Super savings landscape for consumers”.
The communication to parliamentarians had been timed to coincide with announcements on the QAR by the Assistant Treasurer and Minister for Financial Services, Stephen Jones, but it transpired that Jones offered few incites into the Government’s approach beyond pointing to some announcements in the context of the May Federal Budget and Cabinet consideration of the broader issues.
“There is only one general flaw though, after criticising the Banks for their highly conflicted ‘vertical integration’ advice model for decades, they [industry superannuation funds] now do exactly the same thing. This is not a great outcome for their members, it’s very expensive and around only 10% use it but all members pay for it,” the AIOFP said.
In what it said was a rating of the various players, the AIOFP message to parliamentarians stated:
- The Royal Commission outcome of the Banking ‘fee for no service’ fiasco and the 30 year history of Tens of billions of failed products strongly suggest Banks should stay with Banking Services which they are very good at. They should not be allowed to be a wealth manager or offer Advice services with the exception of inhouse staff being permitted to give information about inhouse product – rating for advice 1/10, rating for Wealth management 1/10.
- Other Wealth Managers that have aligned Advisers [ie AMP, Insignia etc] must be forced to have full and clear disclosure about their conflicts allowing consumers to make an informed decision before investing. Rating? No more than 5/10 due to their conflicts for both functions.
- Wealth Managers without aligned Advisers deserve a high rating for operating a non – conflicted business model – 8/10.
- Industry Super Funds have very favourably changed the Super savings landscape for Consumers. There is only one general flaw though, after criticising the Banks for their highly conflicted ‘vertical integration’ advice model for decades, they now do exactly the same thing. This is not a great outcome for their members, its very expensive and around only 10% use it but all members pay for it. They deserve an 8/10 for wealth management and a 1/10 for advice.
- Independent/independently owned Financial Advisers performance has been rated by an ASIC 827 Report and the latest complaint numbers from AFCA. The ASIC consumer survey found 89% of circa 2,000 Consumers said they will be keeping their financial adviser and the latest AFCA complaint numbers show 98.5% against institutions and 1.5% against Advisers. Based on this the rating it should be at least 8/10.
“We hope this information will assist you with understanding why the Minister may make certain decisions when his Report is released,” the AIOFP communication said.
If AIOFP’s communication was timed to coincide with Jones’ announcements about QAR, I suspect they are jumping the gun. It is becoming very clear Jones doesn’t have the competence or the guts to do anything about financial advice regulatory overkill. He’s very good at talking about the problem, particularly if you are prepared to pay $170 to listen. But he’s far more focused on contriving excuses and delays, than doing anything to fix the problem.
Let’s say you have an aligned adviser operating within these parameters;
Broad APL which has licensee aligned and non-aligned products to select from
The ability to use non APL products
FSCG disclosures
SOA disclosures
PDS disclosures
A demonstration of BID within the client file showing why the recommended product was selected
Underpinned by considerations to the Code of Ethics Standards 1, 2, 3, 4, 5, 6, 7 and 9
In my view, the mere fact that a conflict ‘could’ exist (if the aligned product is used) does not mean that a conflict ‘does’ exist.
Has the consumer been provided all relevant information to make an informed decision? I’d say yes.
One might ask – What benefit does an adviser or practice derive from using a licensee product?
I feel the adviser-licensee product conflict (assuming all of the above dot points are in place) is probably overstated.
This is remarkably different from single product adviser APL’s and I agree with the author that this has lead to poor outcomes.
With regards to politicians – I don’t feel that any meaningful or beneficial change will eventuate anytime soon.
ASIC report 639 showed less than 50% of industry fund advice met best interest duty. Vertical integration and a breach of anything other than inhouse selling is real.
My post refers to the advisers who are aligned with the big licensees where there are both licensee products and a choice of others that are not aligned. (I.e. broad APLs where choice is applied.).
I completely agree that single product advice when used inappropriately is dangerous to consumers.
The question everyone is failing to ask- is Stephen Jones even qualified to be the minister for financial services and capable of making these big decisions? His CV has no correlation what so ever to his current role
Peter has a short memory. Lets count all of his buddies (AIOFP Chairs and Board) who were banned by ASIC due to their dodgy products and conflicts…..oh and losing clients millions of dollars. AIOFP 0/10 – 100% dodgy rating!
I’ve always found the argument that aligned advisor arrangement is inherently conflicted spurious. You don’t go into a Ford dealership expecting to be sold a Toyota. As long as the client is offered a product from the APL that reasonably aligns with their needs where is the issue?
The problem occurs when the client goes into the Ford dealership and doesn’t realise he’s been sold a Lemon!!!
‘few incites’ – meaning ‘insights’?
Incites is to stir up trouble, so you’re inadvertently correct; he’d want as few problems in getting his way or union funds way as possible!
These changes are great. Just think of these poor Nigerian scammers and Philippines Solar power sellers that could soon be working in Industry Super Funds providing Advice.. I was speaking to one of the phone 5 times today about my electricity bill and the savings I could achieve. I was telling them all about the career opportunities soon opening up in Advice here in Australia. He seemed really interested in the educational requirements and the inability to act in anyone’s best interest. They seem really nice fellas and have all the skills required.
I’m pretty confident that a Super fund that advertises their fund only costs $1.50 a week to run, will look after Australians. Advertising balanced funds as balanced that are not, all in order to get top of the table etc etc….After all I look at the good work they’re doing now recruiting people with no experience and placing them in their Industry Super fund call centers and telling them to make it up as they go. It’s that moral and ethical culture that will serve Australians well. Exciting times are ahead really.