ASIC Confirms In-house Product Bias from Aligned Advisers

Large vertically integrated advice businesses have been directing more than two-thirds of their clients’ funds into in-house products, despite those products making up only around a fifth of approved product lists, a new report from ASIC has revealed.

Acting ASIC Chair, Peter Kell

The report, titled Financial advice: Vertically integrated institutions and conflicts of interest, found this applied to life insurance products as well as to superannuation and pension products, and to a lesser extent to investment products.

The release of the report follows a two-stage review conducted by ASIC covering advice provided in 2015 and in 2017 by two advice licensees owned by AMP (AMP Financial Planning and Charter Financial Planning), ANZ (Millennium 3 Financial Planning and ANZ Financial Planning), CBA (Count Financial and Commonwealth Financial Planning), NAB (GWM Adviser Services and NAB Financial Planning), and Westpac (Securitor Financial Group and Westpac Financial Planning).

“…the high proportion of funds invested in in-house products, suggests that the advice licensees…may not be appropriately managing the conflict of interest…”

Collectively, ASIC found that while 79 per cent of the products on the licensee’s Approved Products Lists (APL) were external products, and 21 per cent were in-house products, 68 per cent of clients’ funds were placed into in-house products.

ASIC stated the placement of funds covered all aspects of advice including life insurance as well as investments, platforms, pensions and superannuation, and varied across different licensees and financial products but, in most cases, there was a clear weighting by advisers towards in-house products.

Interestingly, ASIC found the bias to inhouse life insurance products declined when new business was being written. The report stated that 65 per cent of all funds directed towards life insurance products went into in-house products, but only 31 per cent of funds directed towards life insurance products from new customers went into in-house products.

The regulator stated “…we do not expect the proportion of customer funds invested in in-house products to be the same as the proportion of in-house products on an approved product list.”

“Despite this, the high level of non-compliant advice, combined with the high proportion of funds invested in in-house products, suggests that the advice licensees we reviewed may not be appropriately managing the conflict of interest associated with a vertically integrated business model,” ASIC stated.

The regulator also added that while it had listed the licensees involved in the review, it had not released specific details as ASIC was required to maintain confidentiality in its data gathering, and that it may use the data to seek an enforcement outcome against a licensee or adviser.

Acting ASIC Chair, Peter Kell said the regulator had already begun work with the licensees to address the management of conflicts of interest adding, “There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes, and the results of this review will feed into that work”.

  • IndyJonesJnr

    How is this even news? Why even do the research on historical results? While stating it is advice of 2015, and 2017, much of it would be based on initial advice of 5+ years ago for say a platform selection, when most of the Dealer Groups mentioned only had the in-house product on their APL. So to pass a historical lens over a product selection process that at the time was given a green light by ASIC is akin to judging a 2012 tax return on 2018 tax guides. It is nonsensical.
    No reasonable person within the industry would declare that the aligned dealer groups in the past were anything but distribution arms at the time. And frankly, having worked with both aligned and non-aligned dealer groups, the non-aligned groups claim that their product placement did not favour one or two products is also questionable. Call it preferred, call it good claims experience…I have seen all the reasoning, which equates simply to playing favourites on product selection because you know they work
    But times are changed – The statement that only 31% of new life business is directed to the in-house product indicates the system is now working better. It will however take some years if not decades to adjust the historical flow of funds and premiums. And some will never be able to be changed due to underwriting / pension issues. To take immediate steps to re-balance the whole portfolio would fall foul of and be deemed as pure churning.
    The industry is heading in the right direction. Articles like this serve only to point out sins of the past, that at the time were played under a different rule book. Why not have a headline that states, “more than 2/3 of new business now written with non-aligned products”. Now that’s a good story.

    • Ben

      Spot on!

    • Scott

      Well said and I totally agree!

  • Mark B

    I would be interested to know the sample size and how the advisors selected were selected. I have heard on “the grapevine” that the sample size was small and advisors tested were ones that were nominated by their licensees as being suspected of providing poor advice or churning. Accordingly, drawing wider conclusions from the results may not be accurate. I would be interested in the hard data or getting a copy of the actual report on this if anyone has it.

  • Lester Beling

    No matter what any person or body says, the system is crook, when you have a master sitting at the top guiding the traffic by approved product lists [APL] the adviser aligned to a dealer getting ” other income” from volume sales etc. Has no option but to LIP load on sales or create an APL. Just remember that all product manufacturers must have an outlet. So dealers with any association to a supplier by ownership or by getting extra for volume will always promote this. This is a conflict of interest and always has been so.

  • Squeaky_1

    Risk Info, love your work generally but, truly guys, this isn’t news to any adviser with a heartbeat! Not having a go at you Risk Info – having a go at ASIC if anyone. This has been the case for decades be it institutionally owned AFSL’s or the older managing agencies. ASIC just want to make it sound like they’re re-inventing the wheel, methinks. typical. I read in another article ASIC has just made it’s first killing on an adviser due to his LAPSE RATE! Can you believe it! Decades of business twisting and just NOW the super sluth detectives at ASIC announce they’ve caught someone doing this with a high lapse rate. You couldn’t make this up. It is like keystone cops or Dad’s Army. Federally funded feeble trough feeders all!

  • Marcus

    ASIC you gave your seal of approval for the large institutions to gobble up well run Licensees. The individual AR’s did not have a SAY! Then ASIC placed the industry in a ‘Holding Pattern’ with FOFA and the Unknown. No practice could move.
    ASIC, acknowledge your own shortcomings.

  • Ken

    We have all known for decades that businesses in this case the banks and AMP have always pushed their advisors to “flogg” the in house product
    If you think about it not much has changed in over 30 years
    As a “tied” agent with MLC in the 80’s there were no real options just what was on offer and there were a lot more companies in the mix back then
    It’s not human nature it’s mercanary nature take what you can for the benefit of this group they look after me ( i think) so let’s sell the in house option
    It’s simply if I don’t sell the “bosses” product first I will end up on a checkout machine in another industry?
    Wake up Australia people will do what they need to do to survive they will take risks until the playing field is level and the rogue banks and insurers are brought into line
    Let’s start with the online ones !! No care no responsibility no worries general advice will suffice
    There is no consumer benefit in any of this just a bottom line
    Please someone tell me I’m wrong
    Completely frustrated !!!

  • Rodney Johnston

    I think your partly wrong. All the comments below are beating up on Banks and the large dealer Groups for selling their products which Marcus was absolutely correct in saying ASIC let happen. But it is not just the banks and the larger dealer groups, all planners aligned themselves to product even the industry funds only flog their products. Please inform me if you know just one financial planner, or industry fund that is independent with no alignment. If I want to buy a Holden I go to a Holden car dealer and expect to buy a Holden. If the Public go to dealer group, Bank of Industry fund, that has a preferred platform and all fees and comparisons are disclose, and the client wants to be under that platform is that unreasonable. Most large super funds are reasonable in Australia and I think that we should be more focussed on other things. Mainly the amount of compliance around giving advice and making it affordable to the average Australian that needs the advice.