Industry funds submission slams industry concentration

Only 4 per cent of financial planners operate on a purely fee-based model, according to a submission by the Industry Super Network (ISN).

The submission, filed with the Parliamentary Joint Committee on Corporations and Financial Services, argued that the low number of planners actually working to a purely fee-based model is a measure of the lack of independence in the financial planning industry.

As well, the ISN submission argued that due to the concentration of ownership of financial advisory businesses by banks and other large financial conglomerate institutions, the role played by financial advisers is compromised and falls short of providing professional, impartial advice in which only the client’s interests are being served.

“The financial planning industry in Australia is dominated by large, vertically integrated financial institutions,” it said.

“These large conglomerate institutions typically own all aspects of the financial services value chain from banking, wholesale funds management, product manufacture, administration and retail distribution including financial planning.”

The submission said the vertical integration of the financial services industry was “highly problematic because of the material conflicts of interest it builds into financial advice”.

The ISN submission, unsurprisingly, was strongly critical of commissions-based remuneration and then cited Westpoint and Storm as being “more extreme examples of the deleterious impact which commissions have on the quality of financial advice” suggesting that “the conflicted remuneration arrangements are at the heart of these cases”.

The submission also urged the Parliamentary Committee to note that the planning dealerships implicated in some of the cases “were large, established practices, some of them principal members of the Financial Planning Association”.