FUM gatherers versus advisers
Questions remain over the ability of financial advisers employed by financial product manufacturers to meet the fiduciary duty requirements proposed as part of the Rudd Government’s financial advice reforms.
The proposed reforms announced earlier this week included the intention to amend the Corporations Act to clarify that in “no circumstance is it permissible for advisers to place their own interests ahead of their clients' interests”.
Where advisers cannot recommend a product that is in the best interests of the client from their own Approved Product List (APL), the fiduciary duty might require them to search beyond that list or recommend that the client see another adviser.
Claude Santucci, president of the Boutique Financial Planning Principals Group (BFPPG), argued it would be “very difficult, if not impossible, for advisers who are owned by an institution to not be sales people for their institution’s products”.
“Institutions own financial planning businesses to have a ready distribution channel. How will they reconcile the fiduciary duty to always act in the clients’ best interest with their own objective of achieving funds under management?
“How does a guy who does financial planning for Westpac meet the fiduciary duty if he knows, for example, that there are better products [outside] the Westpac or BT stable?”
Santucci said the BFPPG believes the proposed reforms will remain incomplete until there is a clear demarcation that is easily recognised by the consumer between product sales-driven advisers and independent advisers.
“The industry ought to recognise what the reality is: there are product sellers and there are advice providers.”
But rather than separating the provision of advice from inflows into financial products, the reforms are driving a number of institutionally independent dealer groups to seek to manufacture their own product in order to receive funds management fees to replace commissions, further distorting the advice landscape.
“We are almost at the point where financial planners will have to choose between selling product or providing advice,” Santucci said.
“The Government can move that day forward by [introducing] further reform to ensure consumers can distinguish between financial planners providing independent, strategy-driven ongoing advice and those providing product sales-driven advice. One way to ensure that might be to restrict the term ‘financial planner’ to those advisers meeting their fiduciary duty.”
Recommended for you
The central bank has released its decision on the official cash rate following its November monetary policy meeting.
ASIC has cancelled the AFSL of a Melbourne-based managed investment scheme operator over a failure to pay industry levies and meet its statutory audit and financial reporting lodgement obligations.
Melbourne advice firm Hewison Private Wealth has marked four decades of service after making its start in 1985 as a “truly independent advice business” in a largely product-led market.
HLB Mann Judd Perth has announced its acquisition of a WA business advisory firm, growing its presence in the region, along with 10 appointments across the firm’s national network.
