Planners remain subject to revenue targets
Two large banks have told the Parliamentary Joint Committee (PJC) they do not impose sales targets on their financial planners, but revenue targets and adviser bonus structures are still in place.
The PJC on Corporations and Financial Services asked BT Financial Group and Macquarie Group about potential conflicts of interest arising in situations where the same institution creates financial products and controls a financial advice network.
Both companies told the committee their advisers were not subject to sales targets.
However, Westpac Financial Planning and St George Financial Planning advisers are subject to “revenue targets” and participate in a bonus scheme, while Macquarie has “performance-related remuneration criteria” in place for its advisers as well as a bonus structure.
Both companies assured the committee their advice networks were not established to sell financial products (internal or otherwise), but rather to provide financial advice and other related services to retail clients.
“With regard to conflicts of interest, even prior to the FOFA reforms, the Corporations Act required Australian Financial Services Licensees (AFSLs) such as Macquarie, to have in place arrangements for the management of conflicts of interest,” Macquarie stated, adding the best interest duty also helped eliminate the conflict.
“We believe these obligations are adequate to ensure that AFSLs appropriately manage any conflicts of interest which may impact on representatives/advisers providing advice to their clients.”
BTFG head of government and industry affairs Ryan Bloxom told the PJC the group took its gatekeeper responsibilities seriously, with “strong and well-established” risk management and governance frameworks.
“We accept that conflicts of interest may arise from time to time in the normal course of business,” Bloxom said. “However, we are confident that we have appropriate processes and protocols in place for managing any such conflicts.”
BT advisers are not restricted to recommending in-house products, Bloxom added.
“The group has strong controls in place to ensure that our advisers only recommend products when it is in the best interests of our customers.”
The PJC also asked the Australian Securities and Investments Commission (ASIC) whether it had any concerns regarding institutional ownership of advice networks - despite the elimination of 'conflicted remuneration’ and the introduction of the 'best interests duty’ as part of the Future of Financial Advice reforms.
ASIC pointed to Section 961J of the Corporations Act which requires the provider of financial advice to give priority to client interets.
This obligation applies to advisers working for an advice network that is controlled by a financial institution,” ASIC stated.
“Regulatory Guide 175 states that in order to comply with this obligation, an advice provider must not over service clients to generate more remuneration for themselves or related parties where the level of service is not commensurate with the client’s needs.”
National Australia Bank also has a “monthly incentive” structure for its planners, while Commonwealth Financial Planning’s bonus structure assesses its advisers on both financial and non-financial performance.
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