A super system of big company bias, claims adviser

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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.


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  • Daniel Boce on 10/04/2014 1:09:29 PM

    Im accred by a product manufacturer, and I agree with Rys Wood completely.

    The same investment option can be offered on seven different APSL's, because its on seven different platforms. Each platform has different pricing, so one platform may be far better for a client. So are all the platforms on a APL for the betterment of the client? Are they all available to facilitate client best interest advice, to reduce conflict of interest? They should be if its based on the approval of the investment option? Why cant it be recommended on all platforms? There's no difference in Risk for the client, only a possible fee saving!

    But alas no, that investment option is only available through the platform of that licensee...

  • Warren on 10/04/2014 1:09:28 PM

    Well done Woody, most of us have given up the fight because of all the vested interests and we just want to run our small business in a fair and honest manner as we have done for many years.
    David Murray - met him once after the CBA purchase of Life Companies to secure distribution via their agency force and their systems.
    Actually discussed the consumer advantage of an independent multi -agency system V sole agency !! what a hide I had in those days.
    A fine man but represents the Institutions who have too much power and would prefer to have advisers under their control.
    So, as usual the experienced,independent small practice which has been operating fairly and honestly for many years will not be represented.
    Regulation will continue to make it almost
    impossible for small business to operate

  • Mervin C Reed FAICD FChFP on 10/04/2014 12:44:05 PM

    The Key issue here is the realisation by ASIC that if they simplified the AFSL process and lets suppose all the CFP's and ChFP's got AFSL's then the reduction in problems would leave them free to prosecute the bank wealth management arms for non objective advice.
    It is up to ASIC to get this simple and cheap.

  • SCBarlow on 10/04/2014 11:55:57 AM

    Calls for more regulation and "standards" unfortunately play straight into the bureaucrats hands turning us all into drudges of government bureaucrats.

    The introduction of "occupational licensing" of financial services opened the slippery slope. As with all licensing, the most vocal early supporters were not consumers, but the operators who used the opportunity to cultivate government to obtain laws and rules that favoured and 'protected' the major participants. Barriers to entry were raised, margins protected, profits elevated and the industry looked about and saw that all was good.

    The government began its usual practice of trading favours for what it wanted. Politicians gained contributions and votes for being seen to 'fix' the industry. The industry patted itself on the back because it saw that it had captured the regulators. And so the story might have ended.

    Comfortable with its protected position the financial planning industry began to extract monopoly rents and product quality (at a minimum) stagnated and indeed reduced.

    The betrayal of the public trust was eventually exposed through a series of "failures" (HIH, Westpoint, etc). A public outcry ensued and government declared the industry could not regulate itself. New crisis's follow (MFS, CBA, Astarra, Storm) followed by further intrusive and costly regulatory intervention, before predictably the government took a stranglehold over the entire industry. The capturers became the captured.

    This has been repeated in many industries, not just financial services. In the short term, the interest groups use the government against the public but in the long run, the government and its bureaucrats end up ruling the roost. It is in government's interest to expand it's bureaucracy. Failure is success, because failure results in bigger budgets, more power, more control. Incessant paperwork and soft 'nonsense' jobs characterise industry roles. Innovation and competition are eclipsed. The public suffers from poor product/servie quality and high prices.

    With history as our guide, here’s what we can expect. The regulation and control will get out of hand and substitutes will arise because the basic demand for financial planning services will remain. Entrepreneurs, through technology, will find new ways to provide the same ‘kinds’ of services. The competition to meet needs will continue under new forms.

    The government will observe these substitutes arising and will attempt to stop or control them through extending regulations. The industry itself, under its own excessive regulatory burden, will naturally insist on regulation of the new competitors so as to level the playing field and maintain its monopoly. The usual cover stories will be trotted out - fairness, equity, fair competition – and the government will add its own stories (consumer protection , market integrity etc).

    It will make no difference if the rationales are false so long as they sound plausible and keep the public apathetic or even supportive.

    The government will always be happy to accommodate calls for new regulation. These will in turn simply raise costs, slow the growth of the industry, reduce consumer protections and benefits, stifle innovation and protect the cartels.

  • David L CFP on 10/04/2014 10:14:43 AM

    Well done Rhys Wood. There are to many fences and barriers in the advice business. Only the product pushes get concerned about AUM. True Financial Planners give advice and charge a fair fee for advice, it is then the clients choice as to where this is paid - personally or via a deduction from their super account. It's not a hard industry, but it is being made very very hard with all of the fighting between self interest groups. How do we attract anyone to this profession when there is no clear direction.

    I agree fully on a "Standards Board", this is mandatory for our emerging profession.

  • Alistair on 10/04/2014 9:58:09 AM

    Well said Rhys. It confounds me how BEST INTEREST can be served with such garbage promoted by the ISN and the big 4 banks and life offices and condoned by the former government and now its seems the current government.
    The regulators need to help honest advisers not salesman promote the virtues of what good advice can deliver. They need to provide encouragement to the consumer to save, insure and protect their future and for the adviser to be a true professional.
    So, the answer is simple. DIS-ENGAGE the manufacturer of product from the adviser. No conflicts please where INVESTMENT products are sold. No skewed Approved Products Lists which is weighted toward the manufacturer of the product via its sales force of authorized advisers. Strictly fees for advice paid by the consumer in the form of dollars or percentage of FUM as agreed in a binding contract. Transparency is achieved. No conflicts. Simple. Pay direct via your card or direct debit from your bank account or even superannuation funds.
    This has a benefit long term in assisting the cause of Australia's own fiscal and budget outlook. This will go far in educating consumers and making sure they do not live out their years in abject poverty or merely getting by on a pension !
    As for RISK products. Again simple. Insurers should pay a FLAT commission upfront and ongoing. This in the long term will assist advisers build valuable risk businesses. This commission can be negotiated down from a competition viewpoint as far as the adviser is concerned seeking to win business and demonstrate value in their advice. Not the current nonsense of commissions driven up to win an advisers business. One wonders how insurers can sustain this model as claims rise.
    This forces the insurer to design products worthy of an advisers recommendation.
    And no super fund should be allowed to advertise on any form of media promoting their image. It is not in the interest of the consumer, drives up their MER's and or platform fees and more importantly FAILS the SOLE PURPOSE TEST of what superannuation is about.
    Folks, what a farce this industry has become and its largely due to the self interest of institutions and the industry super network driving a skewed agenda.
    The casualty in all of this is the consumer, the adviser and oh yes....our economy.
    Get set for a recession while we have dopes that have run, are running and continue to run this skewed story called Australia and its golden egg....the superannuation industry.

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