Dealer group Synchron has welcomed the Financial System Inquiry’s call for further industry feedback on vertical integration.
Issuing its interim report last week, the FSI said it would welcome stakeholder views on competition issues in the broader wealth management sector, including those arising from industry consolidation.
‘Competition in the wealth management sector appears to be focused more on securing distribution channels and improving product features, rather than reducing fees,’ the Report says.
…the client has a right to know if any product recommended by that adviser is manufactured by the same organisation
Synchron Director, Don Trapnell, said the group had been concerned for some time that there was a significant conflict when financial services products are owned and distributed by the same parent organisation (see: Serious Conflict Posed by Vertical Integration).
“While the advice given by an adviser in a vertically integrated advice firm may very well be sound, the client has a right to know if any product recommended by that adviser is manufactured by the same organisation,” Mr Trapnell said.
Mr Trapnell said he was pleased that the vertical integration issue was now being addressed by the FSI.
“As we have always said, it is in the best interests of consumers to ensure that they are fully aware of all the relationships that exist between their advisers and the products their advisers recommend, and how those relationships have the potential to impact on the advice they are given. In fact, we believe it is essential, given the adviser’s obligations under the best interests duty provisions of the Future of Financial Advice legislation.”
Coupled with flogging the same product that is produced by your employer, how ethical is it for Bank Staff to direct their customers to their in-house adviser, with knowledge of confidential banking details about the customer? What’s the difference between that and recommending that a customer see their cousin Vinnie who has his office across town?
Mark, the difference is that the customer is fully informed that the employed adviser is recommending a product that is owned by his/her employer. I have no issues with the advice being given, just that clients should be fully informed who on owns the Licensee and therefore be made aware of any possible conflicts of interest. As it now stands, a client may believe he is getting advice from an Adviser that is independently owned, but in fact the adviser may be from a Licensee that gives financial incentives to support it’s own product or a financial disincentive to recommend a product from a Life Office other than the one that owns the Licensee. That is just not right!
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