01.New report exposes bias
Australia's six largest financial planning groups have consistently directed customers to their own products, according to new research by Roy Morgan Research. The report confirms longheld suspicions that conflict of interest is widespread in the industry, compromising the chances of independent financial advice.
“Each of the Big 6 financial planning groups is associated with a major funds management group,” the report states. “Consistently over the three years, these financial planning groups have been allocating over 70% of their [superannuation fund] sales to their own products and in the last 12 months this figure is 73%.”
The table below shows the proportion of superannuation products obtained through each of these financial planning groups that ended up with a fund manager from the same group of companies as the financial planner. AMP has consistently had the highest proportion of their planner’s sales going to its own funds with over 80% in the last four years (and 82% in the 12 months to December 2009). Over the last three years the ANZ/ING planning group has been the least likely to direct their clients to their own products; in the 12 months to December 2009, 47% of ANZ/ING advice clients ended up with parent company products.
At present, financial advisers do not have a legal responsibility to place their clients’ interests ahead of their own (known as a fiduciary duty). Following a Parliamentary Joint Inquiry, to which CHOICE provided evidence and a submission, Chris Bowen, the Federal Minister for Financial Services, Superannuation and Corporate Law, has published the Future of Financial Advice, a comprehensive reform package to clean up the industry. The changes, which will take effect from 2012, will do much to protect consumers, including placing a fiduciary duty on advisers. But with up to 85% of advisers owned by major banks, super funds and other financial “product manufacturers”, further deep rooted conflicts of interest will also need to be addressed.
The reforms will also ban investment commission payments, the predominant form of payment for advisers. Commissions continue to exert enormous conflicts of interest on many planners, tainting the independence and quality of their advice. Investments that do not pay commissions, such as direct shares, exchange traded funds, listed investment companies and industry funds are unlikely to be recommended by most advisers. “It is worth noting that neither the big 6 financial planers or the other planners are very likely to direct switchers towards industry funds, when compared to funds switched through other channels,” the Roy Morgan report states.
TABLE: He who pays the piper, calls the tune
Advice group Percentage of superannuation products obtained through financial planner also with the same manager
Total Big 6 73%
Source: Roy Morgan Research, Superannuation and Wealth Management in Australia, May 2010.
Data period: January 2009 - December 2009, sample n = 1,350 work based or personal superannuation products obtained through six major planning groups.
CHOICE will soon publish a guide to finding genuinely independent financial advice. If you have a story to tell about financial advice you’ve received, please see the comments section below.