Cross-ownership a barrier to good financial advice: ASIC
The ownership of financial planners by product manufacturers creates one of the main barriers to improving the quality of advice in Australia, according to the Australian Securities and Investments Commission (ASIC).
In the final report on its shadow shopping exercise, ASIC identified a number of barriers to improving the quality of financial advice in Australia.
The regulator first pointed to its 2009 submission to the Parliamentary Joint Commission, which stated that approximately 85 per cent of financial advisers were associated with a product manufacturer, "so that many advisers effectively act as a product pipeline".
These conflicts of interest were also present in the financial advice ASIC reviewed in the shadow shopping research study, the regulator said.
More than two thirds of the financial advice examples involved the recommendation of in-house products or products associated with the advice group.
Of these, 11 of the 13 advice interactions with advisers from the big four banks (or their financial planning divisions) resulted in an in-house product recommendation, ASIC said.
"While in some cases, the products recommended may have been equivalent to or better than the client's existing product, there were also cases where the in-house products recommended were relatively more expensive, or other reasons meant that the product switch was not adequately justified," ASIC stated in its report.
Other potential barriers to improving the quality of financial advice as identified by ASIC were:
- the role of financial products
- remuneration structures; and
- the quality of adviser training.
The list of these barriers was published in ASIC's report 279: shadow shopping study of retirement advice, which found the majority (58 per cent) of financial advice examples it reviewed were adequate. Around 40 per cent of the examples were rated by the regulator as "poor" and two advice examples were deemed good quality advice (3 per cent).
These findings resemble those presented by ASIC to the Parliamentary Joint Committee during discussions on the Future of Financial Advice reforms several weeks ago.
The regulator said the barriers that currently prevented the quality of financial advice from improving were not the same as those that discourage people from accessing financial advice.
Recommended for you
Financial Services Minister, Stephen Jones, has assured the cost and time to enter the financial advice profession will soon be halved, as shadow treasurer Angus Taylor pledges to reach 30,000 advisers.
The positive results of the latest financial adviser exam have helped the advice profession reach 15,600 yet again, according to Wealth Data analysis.
Financial advice firms have told Adviser Ratings they are planning to increase their compliance spend by almost a third, including on enhancements to their cyber security which ASIC has identified as an enforcement priority.
The digital advice platform is officially launching into the financial advice sector, offering up its services to practices as a means of engaging with the next generation of clients.
