ASIC has called on the financial services industry to make the distinction between independent and restricted advice.
In its second submission to the 2014 Financial System Inquiry, the Government’s financial services regulator has made a raft of recommendations, including one based on the argument that consumers are regularly under the impression that ‘… they are dealing with an independent advice business when in fact the business is related to or owned by a product manufacturer.’
consumers are regularly under the impression that ‘… they are dealing with an independent advice business when in fact the business is related to or owned by a product manufacturer
ASIC makes two recommendations that take the form of future requirements for advisers licensed under dealer groups owned by product manufacturers, when dealing with their clients:
- The inclusion of a prominent, simple statement about the relationship of the adviser to the issuer and the limited range of products the adviser is able to recommend
- That the advice business that is tied to an issuer calls itself a ‘restricted advice’ business
In a poll conducted by riskinfo earlier this year, advisers overwhelmingly supported the notion that consumers should be alerted to whether the advice they were receiving was from an ‘aligned’ or ‘non-aligned’ perspective (click here for more details).
If these recommendations are adopted, it will create a greater distinction between vertically integrated and independent licensee groups within the mind of the consumer.
The call for advisers to identify whether their advice was ‘restricted’ was one of a broad range of recommendations made by ASIC, which covered areas including:
- Disclosure and alternative regulatory tools
- Improving the quality of financial advice
- Consumer loss and compensation
- The role of the regulator
- Penalties
- Systemic stability
- Market financing, and
- International regulatory integration
Click here to access ASIC’s complete second submission to the David Murray-led 2014 Financial System Inquiry.
My Dealer Group allows us to provide advice on products within it’s APSL and for others upon a request. The restriction comes from the professional Indemnity Insurance cover which states we can only advise on products approved by the Dealer Group. All regulated Super funds can be advised on. There are over 2,500 products available on the APSL. Most that are not are replicants of what is on the APSL.
Clients think that if I work for the Dealer Group which I do not as I have my own Company, no License, therefore can only operate as an Authorised Representative, then I have to recommend only products approved by that company and furthermore that ALL of these products will be manufactured by the Dealer Group. This is patently wrong.
Our practice can and does recommend Super, Insurance, Investment and Home Loans produced by manufacturers other than the Dealer Group.
Unfortunately I cannot call us “independent”.
If there is a problem, then get the Dealer Groups to widen their APSL and introduce a method of being able to recommend products not on the APSL. Simply adding the suggested paragraph tells me the suggestion is made by someone who doesn’t understand the issue properly. Secondly, it will be guaranteed to get clients thinking we can only recommend products manufactured by the Dealer Group.
Being aligned is a legislative requirement.
But it does not force one into always recommending that Dealer Groups products.
Can we please have some sense with this!
As Peter says it’s true that we aren’t totally ‘independent’ because if so we could offer advice and products from any issuer.
That said, unless clients are particularly savvy they don’t really care whether an adviser is independent or not. As long as their needs are met and they believe the adviser has done his homework, they’re quite happy to accept his recommendations. Incidentally our dealer group is non-aligned. Cross-selling is a concern from the major banks and their advisers are least independent of all.
Even so, an analogy is helpful: if we see a GP and he recommends a form of treatment (translation: prescribes a drug) we don’t expect him to lay out the make up of each one and which product manufacturer it comes from so we can choose for ourselves, do we? How would we know anyway? We expect the GP has done his homework and has recommended the most appropriate form of treatment. Restricted advice? Big storm in a little tea cup, in my view.
Pul, interesting anlogy with a GP, except of course, many GPS get given fantastic gifts from various companies to push their specific drug. Just a thought.
I thought the Financial Services Guide and the Fees and Disclosures sections of Statements of Advice already have to clearly disclose “relationships.” It appears that in order to make advice simpler for clients to receive and understand, the regulators want to make everything even more wordy.
Agree Peter. The proposal from ASIC is an over simplification of the broader issue which may lead to further confusion. In addition, there appears to be a natural bias in this ‘separation’ argument that suggests that ‘restricted’ advice is not as good as ‘independant’ advice, which is not the case. (Unless of course, you are an ‘independant’ and you have built your whole business on that premise, in which case you truly believe you are superior.) This should not necessarily be a case for more rules, but greater enforcement. We don’t keep lowering the road speed limits because people break the law, we provide more policing.
I echo the sentiments above.
Businesses make the decision to align themselves with someone at some stage……they aren’t going to run inefficient administration/reporting platforms themselves in-house when there are so many quality and cost-effective products. Even if they don’t align vertically and are “independent” I can’t see any difference if they end up having a preferred wrap product and preferred investment strategy……..it still is a bias.
In fact, some advisors are very proud of the fact they have chosen to align their business with a product manufacturer as they consider them the best. I am.
I’m sick of hearing that advisers are all tainted by product. We disclose til the cows come home and the vast majority of clients simply don’t care – the eye rolling is amazing by some.
In my opinion, the raft of changes over the past few years and the proposed educational requirement (increases) don’t change perhaps the most important factor in all of this: is the individual adviser ethical themselves? In their heart of hearts are they interested in mutually profitable relationships with clients or simply profitable relationships.
In most cases, I believe the answer is the former. And having the “unethical” advisers sit through more study won’t change their approach one bit as they have the wrong moral code in the first place. Same issues in medicine, law, accounting……all walks of life.
If I hang a sign above my door which says restricted advice, I think it is ridiculous. My APL says I can get approval for ANY product as long as I can provide research and justification of it being appropriate……that sounds pretty unrestricted to me…….
The sad part about this is that the term “independent” is potentially seen to be superior when in fact we know that is not the case. No adviser could possibly admit to “knowing” every product in the market and have enough thorough research to make an objective decision about each and everyone. In the end of the day non aligned advisers tend to have a few “favorites” that they support most of the time..
Clients generally want a robust and reliable product and really don’t care which fund they are invested into as long as their money is with a reputable brand and they feel comfortable and safe about their investment decisions and their future.
Additionally,there is a wrong perception in this industry that product is advice.
As an industry we have a lot of work to do to help clients see through the BS.
I welcome this submission. I have worked hard to now have my own AFSL and I can add and remove any financial products as I see fit provided it is meeting the needs of my clients. Its always client focused and not based on an inherent product push by the provider or bank.
I believe that its time to make a distinction that is clear for consumers. If your practice is owned by a bank or a product provider you have limitations whether you like it or not and there will always be a conflict of interest that needs to be managed very carefully and consumers need to be educated around this.
Its time for a huge leap in education standards and advice quality in Australia.
I am always fascinated how an operator with own AFSL manages the Ápproved Product List’. What qualifications, what industry experience what distinction do they have to ascertain a good long term investment or protection product and how do they continually monitor the appropriateness of the product? Is the concept of developing and managing own Ápproved Product List’ only a marketing strategy rather than a true valueable commodity? Being non aligned is probably a bigger risk, especially when one considers the history of APL’s with Agri products, debt securities, property funds and a vast array of other failed investment schemes.
Yes, my practice is connected to one of the Big 4, however this gives peace of mind and assurance that qualified and focused specialists are researching products for inclusion and continuation on the APL.
Walk into NAB and get 80-100% MLC product, walk into ANZ and get 80-100% OnePath, walk into WBC and get 80-100% BT, walk in to CBA and get 80-100% CFS…… Hmmm. As for “aligned” businesses, most if not all pretty much use 100% of their aligned product. In some cases they are mandated (if not officially they are strongly “encouraged”). Further, they are incentivised by higher multiples on sale of their business by the likes of the above so it becomes a commercial decision/incentive. Some however do have more flexibility. That is the reality of what is happening and the reason why the ASIC is making these noises… Stop kidding yourselves.
Is this not already in the FSCG ASIC ?
I hope this means that any self licensed advice business that has an override agreement (they still exist with insurance) discloses the same conflict and any group with a badged or white label platform does the same.
The word “independent” is restricted because it, for the most part doesn’t exist.
Those that are truly independent likely don’t use any product and simply issue advice, for the majority of Australians is something of a dis-service.. Telling someone to go buy insurance doesn’t protect them, in the same way most people tell their clients to review their Will…every year.
I think this is great news. I chose a non-aligned AFSL (Synchron) because I believe it is better for both myself and my clients. I have worked for practices in the past that were aligned to an insurer or bank and was disappointed to see that the parent company obtained 90% or more of the business because it was easier for the adviser or they received additional incentives to do so. It had nothing to do with what was the best outcome for the client, yes the overall advice was good (in most cases), but the product recommendations were for the most part an auto-pilot decision with no thought or consideration as to what would be the best for the client in terms of product or pricing. If a client is being recommended an aligned product, they should know, particularly if the adviser is being limited by their APL.
Our business is a corporate authorised representative of a licensee that is not owned by a bank or product manufacturer.
Yet the main platform we utilise and on our APL is provided by Colonial First Choice, which is owned by the CBA, we also recommend home loans through MLC Mortgage Solutions, which is owned by the NAB and estate planning via Equity Trustees, which is owned by EQTand affiliated with PIMCO.
Does that make me a “tied” adviser? No. We use these products and providers because:
a. We find the platform costs are low with excellent service and a good range of products. A win-win situation for both the adviser and the client
b. We have established a very good relationship with the providers, which simplifies the process and they do all the groundwork for us.
For me, I do not have a problem with advisers using a product from the company of which they represent, as long as it is competitive and of good value for the client. In a fee-for-service climate, the adviser is charging the fee, not the product provider.
It is without question that robust systems need to be in-place to ensure compliance and basic consumer protections regarding the provision of financial advice… however, the issue of ‘aligned’ versus ‘non-aligned’ advice is irrelevant if the best interests of the consumer are considered. Is there a measure on or regulation enforcing the value the advisor delivers to the client (besides market forces)? No. But, regulations are put in-place to protect against the economic forces that incentives will influence behaviour… In a free yet regulated market there needs to be a final point where consumers have the responsibility for their actions.
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