An AMP-accredited adviser has lodged an explosive submission to the Financial System Inquiry, attacking what he sees as entrenched big company bias within financial advice.
Rhys Wood, the director of financial planning for Elite Wealth Solutions, said bias runs rampant within the industry due to the expensive process of obtaining an Australian Financial Services Licence (AFSL), and the Industry Super Network’s crusade to seize greater control over superannuation assets.
Much of the bias stems from the lengthy ASFL process required by ASIC, he said. This can be burdensome for small and medium financial advice firms to take on, and as a result they are attracted to operate as authorised representatives of dealer groups.
However, generally these groups are subsequently owned or associated with even larger institutions that provide financial products to the market, Wood said.
“Given that many of these AFSL holders are owned and operated by institutions that supply the financial products recommended to retail advice clients, ASFL holders develop Approved Product Lists (APLs) which virtually exclude all other products from providers who compete with their parent company,” he said. “In essence, institutionally owned AFSL holders (both union affiliated and otherwise) claim that the products provided by other institutions are not fit and suitable for use by retail advice clients.”
Wood claims that due to this limited range of financial products offered, clients may also be unknowingly paying more than is necessary.
If this systemic institutional bias within the financial services industry is reduced, the costs involved of providing advice to clients will also drop due to increased competition between ASFL holders, advisers, and product providers.
Wood urges the inquiry – headed by former Commonwealth Bank head David Murray - that a number of changes need to be made to resolve these problems.
Firstly, he suggests that an Australian financial planning standards framework and an Australian financial planning standards boards should be established, similar to that of the accounting profession’s framework.
“By replicating this model for the financial advice and services industry, and removing the need for dealer groups to set and maintain their interpretation of these standards; small to medium firms will be provided with the support and guidance necessary to operate their own AFSL in a compliant, professional, and ethical matter,” he said.
A Certified Financial Planner (CFP) or Fellow Chartered Financial Practitioner (FChFP) should also be established as the minimum education requirement for advisers to obtain an AFSL or to operate a practice, the submission stated.
Wood said the current minimum requirement – a diploma in financial planning – is too low and results in the entry of advisers with limited understanding of the intricacies of the economy.
Introducing a requirement for planners to obtain these qualifications before establishing their own practise or providing direct advice to clients will deter rogue operators from entering the industry, resulting in far fewer breaches.
“According to the Financial Planning Association, advisers who hold this designation represent a mere 2% of ASIC enforcement activity,” he said.
Finally, Wood attacked the advice fee system within the Industry Super Network.
Increased activity by unions has restricted the ability of employees to choose the superfund of their choice, he said.
“As part of the Industry Super Network’s concerted effort to seize greater control over superannuation assets and subsequent advice, Industry Super funds have systematically denied clients the ability to utilise their superannuation funds to pay their financial advisers for superannuation and retirement advice.”
He added that retail super funds, in contrast, allow their clients to pay for advice via their super accounts regardless of the adviser’s employer or ASFL provider.
Those clients employed by an organisation under an EBA or Award that requires they only use the union preferred Super Industry fund are forced to obtain advice by advisers already employed or associated with the fund.
“This results in the client being effectively denied the ability to seek advice beyond the influence of unions,” Wood said.
His solution is to allow any agreed advice fees to be deducted from superannuation on instruction by clients regardless of the fund.
This way a greater portion of the community will receive financial advice and potentially be able to retire with a lower requirement for government assistance, he said.