Industry super lobby group the Industry Super Network (ISN) has used a recent Australian Securities and Investments Commission (ASIC) report to label the advice industry as 90 per cent sales and 10 per advice, and to reiterate its calls for a ban on commissions and the introduction of opt-in.
The ISN was referring to ASIC’s September study "Report 251: Review of financial advice industry practice" which found that among the country’s 20 largest licensees (representing around 70 per cent of the country’s advisers), only around 10 per cent of remuneration is received in the form of client fees and neutral product payments.
Around 90 per cent is paid by product providers in the form of ongoing commissions, up-front commissions, and volume rebates or manager fee rebates, ASIC found.
ISN also pointed to a finding that around two thirds of clients from the top 20 licensees were regarded as inactive.
"The ASIC report has pulled back the curtain to reveal the extent to which the structure of the financial planning industry impedes planners from being able to act in the best interests of their client," the ISN stated.
Future of Financial Advice reforms are essential to serve the interests of clients, the ISN stated. It said financial planning industry opposition to the reforms was easy to understand because "this is an industry built around conflicted remuneration and passive income charged to millions of unwary clients (often from their compulsory super) who receive no ongoing services".
The report also found that among the top 20 licensees there is a concentration of funds under advice into related party products.
"Consistent with an industry that is, operationally, a sales and distribution channel, rather than an impartial source of advice, the ASIC report revealed that advisers concentrate product recommendations into a few products, often issued by related parties," the ISN stated.
The ISN called for ongoing reporting on matters related to those considered in the ASIC report. These included the business models; ownership structures; remuneration practices; assets under management; product concentration; qualifications and number of advisers; risk management; and practices related to approved product lists.
ASIC’s report was based on a questionnaire sent to licensees in December 2009 and based on data from the 2008 and 2009 financial years.
