Damning ASIC report finds bank advisors don’t act in the client’s best interest 75% of the time, with consequences for brokers
Damning ASIC report finds bank advisors don’t act in the client’s best interest 75% of the time, with consequences for brokers
Three-quarters of decisions made by banks’ financial advisers were not in the customer’s best interests, an ASIC report has found.
Furthermore, according to ASIC “10% of the advice reviewed was likely to leave the customer in a significantly worse financial position.”
The sharp findings were part of an ASIC report on financial advice at AMP, ANZ, CBA, NAB and Westpac. In a similar style to ASIC’s Review of Mortgage Broker Remuneration, the regulator looked at conflicts of interest.
The advisers studied recommended in-house products 68% of the time, despite in-house products making up just a fifth of the products they offered.
Acting ASIC chair Peter Kell commented that: '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.'
Why this matters to brokers: vertical integration
ASIC’s verdict on vertical integration was highly critical: “conflicts of interest are inherent in vertically integrated firms, and these firms still need to properly manage conflicts of interest in their advisory arms and ensure good quality advice.”
Vertical integration is also a topic of discussion in mortgage lending and not just for ASIC; the Productivity Commission is currently investigating competition and vertical integration and the Royal Commission into banking could also cover the topic.
Responding to ASIC’s concerned, the Combined Industry Forum (CIF) recently agreed to disclose lender ownership of more than 20% of an aggregator or brokerage. However, ASIC’s statement could be seized on by consumer advocates to argue for tougher rules on vertical integration.
Why this matters to brokers: a customer’s best interest
The regulator’s findings have arguably made a mockery of financial advisers’ legal obligation to act in the customer’s best interest. Yet this is the model that brokers have gradually been moving closer towards.
Consumer advocate CHOICE called for brokers to also be required to act in a customer’s best interest. Although the CIF rejected this move, it did define a good customer outcome, to be accompanied by an industry code.
Neither the good customer outcome nor the industry code are legally binding at present; penalties would most likely include lack of accreditation and trail. Should ASIC’s findings prompt the Government to take a tougher line of financial advisers, brokers would have to make their case to be exempt.
