Banks divesting their wealth businesses has not led to a wider variety of products being recommended to customers but, rather, it has led to bank staff promoting the products of other parties with whom their employers have a relationship, according to the Finance Sector Union (FSU).
What is more the union has claimed that planners working within small and medium advice businesses are just as likely to be guilty of misconduct as their counterparts employed by the banks.
In a submission filed with Senate Economics Committee, the FSU acknowledged that the provision of prudent financial advice in the customers’ best interest was a matter of community and national importance.
However, it added: “As was revealed in the financial advice round of hearings during the Recent Royal Commission, the misconduct in the financial advice industry was not limited to the large entities, but also arose in small and medium advice businesses”.
“Rather than focusing in where advice is being provided, the focus must be on improving the ethical standards and standing of the financial advice industry,” it said. “In this context the Union does not believe that vertical integration is an unsurmountable problem. Indeed, a focus on vertical integration may obscure the observation that similar issues arise as a result of exclusive and preferred provider contractual relationships.”
“The Union’s observation is that divestment of wealth businesses has not led to a wider variety of products being recommended to customers. Rather, there has been a corresponding increase in relationships between banks, insurers and financial advice businesses such that staff are required to promote products of third parties in the same way as they previously promoted products issued by their employer or its subsidiaries,” the submission said.
The FSU said it therefore did not believe that the solution to conflicts that arise from vertical integration was to ban such structures or separate the entities.
It said that, rather, the solutions involved a range of measures including prohibiting conflicted remuneration defined as all variable or contingent pay, eliminating the general advice exception under the Future of Financial Advice provisions and avoiding incentives that promote sale of a product or class of product.
