RC background paper’s blunt assessment of life/risk advice

A background paper on the sale of life/risk products provided for the Royal Commission has suggested that in return for subsidised dealer group fees institutionally-aligned advisers “are encouraged to recommend related party products”.

The background paper, prepared by academics from the University of Technology, Sydney, the University of Sydney, the University of Exeter, the University of Western Australia and the University of Queensland, has delivered a blunt analysis of aligned advisers and the sale of life/risk products.

The background papers make clear that the views expressed are those of the authors and not those of the Royal Commission.

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Included among the background paper’s assertions is the claim that “the fees charged by institutionally-owned dealer groups deliberately do not cover the cost of providing dealer services. They are heavily discounted to attract advisers”.

“Typically, in exchange for subsidised dealer fees, advisers are encouraged to recommend related party products,” it said. “The main way this is legally done is via restricted approved product lists (APLs) which are populated with in-house product – life insurances issued by a life insurer in the same corporate group as the dealer group.”

The background paper also provides a blunt assessment of the operation of APLs suggesting that the “original” theory and practice was that APLs set out products that a licensee had researched and reviewed.

However, it then went on to state, “Now a material number of dealer groups offer few life insurance products on their APL and the majority are life insurance products issued by a life company within the same corporate group as the dealer group”.

The Royal Commission will begin its hearings relating to the insurance industry on 10 September.



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Typical of academics. Having completed a Masters in Financial Planning including a research paper, I did some investigation into academics and what they thought if financial planners. They cited information from newspaper articles written by journalists, who had clear biases, to draw negative conclusions. They may need to delve a little deeper into the quality of the product. The Royal Commission into bank and financial services has become a fishing expedition turning into tedium. The whole process has now turned into farce where those responsible for running the industry super networks remain untarnished remain untarnished yet careers of major retail institutions have been ruined. Some of those affected have become suicidal.

Do they explain how the advisers have knowledge that the dealer fees are subsidised? Or is this an assumption. If a dealer asks you to pay X, and has 6 insurers on an APL, then if it chooses to offer a price below cost, that's their business. They don't give advisers costings to tell us the true cost, so how do we know it's subsidised.

I welcome this style of investigation into financial planning, with a single caveat - that there be an equivalent study into the origins, impacts and outcomes of cross-subsidies within the entire marketplace.

All that is being highlighted in this particular study is a particular business model.

The dealer/product affiliated model is conflicted owing to remuneration but most business models are because of the need to meet multiple objectives in a regulatory environment. A regulatory environment that is, frankly - impossible.

Some business models seeks to avoid the cross-subsidy through narrowing the client selection - for example, a $400,000 minimum assets-under-advice or a minimum fee of $3,000 or only dealing with wholesale investors.

At some stage, regulators, legislators, and policy agitators need to acknowledge this business requirement, and publicly address it. There needs to be a better understanding of the business and commercial realities facing advisers attempting to provide a financial service (which often is not personal financial advice) to the general public.

Financial planners are not magicians. We cannot magically summon a low-cost, effective, compliantly and practically correct advice process that covers the entire range of client outcomes, including legacy accounts and clients. However the regulatory and now public assumption is that we can.

I've read articles suggesting Treasury and regulators are of the opinion that everyone is somehow better off in a shiny new policy. I've seen articles suggesting that advisers should discard clients/ impose new fees/ get out of the business because there are some obvious answers to legacy issues that advisers are too blind to see or incapable of dealing with.

I would suggest that is a blinkered view of a multi-faceted environment, and one that completely discards the realities of financial planning businesses operating in a chaotic time of significant industry change and regulatory uncertainty -and if anyone doubts that regulatory uncertainty then they have not been running a financial planning business these past 10 years.

Contrary to what is now a common public perception, my experience suggests most financial planners are extremely focused on meeting their client needs, and seek at all times to operate in a manner that balances the client needs with marketplace realities. Realities like being obliged to report to, and operate under, a "dealer". And I am not just talking of advisers operating through retail product-linked groups. Industry Fund advice groups are included here. It is an industry-wide issue.

That dealer will have their own imperatives and will impose their own fiduciary obligations on the adviser.

Restricted APL's are just one of those obligations.

A restricted APL does not mean the adviser is not acting in the client best interests. It does mean they are limited by their dealer obligations and ethics - something that has been shown to introduce intrinsic conflicts of interest, which leave the adviser and their clients exposed to that dealer's ability to balance those conflicts.

The Royal Commission has shown us how that pans out.

ASIC's need to balance its mandate obligations with its capacity to meet them, results in support for a dealer/AFSL structure that immediately creates conflicts of interest. This is *not* how a profession operates. Until this regulatory-imposed conflict of interest is dealt with, advisers are stuck between a rock and a hard place. In such a world, cross-subsidies flourish - it's Adam Smith's "invisible hands" trying to work some magic out of the regulatory soup.

It is only my opinion but it is a strongly held one. I believe cross subsidies are an inevitable result of an industry attempting to operate in a well-intentioned but severely faulted regulatory environment.

Well articulated Michael. Pity more on here or in our profession, or even in the RC/regulatory space weren't as clear headed and rationale in their thinking, without their own conflicts and biases.

I hate these articles because they tar everybody with the same brush. Our firm is licensed through an institutionally owned licensee and we have an unlimited APL and are not put any pressure, either by stick or carrot, to place our client's insurance cover with the insurer associated with our licensee but this article will have everyone believing that we do. We are audited every year with one of the major focuses on whether we have always acted in our client's best interests.

I wonder if the full study only said the “some” licensees did this but the reporter conveniently chose to avoid mentioning this fact

Hi Dave, Personally I think you're scum. It's brain washed advisers like you working under an institutionally owned licensee that are unprofessional and holding advice back. You're just an adviser using strategies to sell more product for your bank owned licensee. Now that's harsh but I have to say it to drive my point home. I'm sure you're a lovely guy and love your clients and think you're doing the right thing but you're NOW part of the problem as to why we have FASEA, why we have over regulation, why we have red tape, why the regulator hates advisers.

Whilst you "think" the dealer group is not placing any pressure on you, they can easily create an environment making a certain product look worse or poorer when compared to another. I can tell you now your licensee sits around every day asking how we can get Dave to write more business into ABC Product. Let's see Options 1) Perhaps we could lower dealer group fees if a small range of products are used to lower our compliance costs. Option 2) why don't we restrict emails from Product A and Product B and only allow emails from the home team... Option 3) why don't we ban visits from Product Manufacturer XYZ. Option 4) why don't we only provide training from the home team products..Option 5) why don't we limit software to XYZ as it works better we our in-house product I could go on and on and on. Essentially how do you create a Cult and make Scientology the sole religion. You think you're free but you've been brainwashed. And for those who say I'm unprofessional here, well I've had 20 plus years of being professional and it hasn't worked.

That's a very personal attack Anne. Are you certain you haven't mistaken Dave for an internal bank adviser? He mentions aligned dealer, there is a vast difference and most of what you right is grossly incorrect. Do you really think a self employed business person with an aligned dealer allows that dealer to monitor their server and their e-mail to filter? Please. Have a rethink.

Thanks Phil, it's good to see at least someone hasn't lost touch with reality. As you rightly point out, we do operate under an aligned dealer group and not as an internal bank adviser. As far as Anne's 5 insightful options are concerned she seems to have missed my point that we have an unrestricted APL and can received visits and training from whoever we want. I somehow suspect restricting emails from all the various product manufacturers we deal with would somehow breach the restrictive trade practices act not to mention make it very difficult to service our clients. Anne, I'm a bit confused about whether I am scum or a lovely guy, anyway at least you haven't broken your 20 year record of being professional.

It sounds like Anne is the one who has been drinking the purple cordial with comments like that. Comparing an aligned dealer group with a cult seems more than a tad far fetched, not to mention that almost every one of your 'compelling' points are entirely incorrect. The idea that a dealer group would restrict emails from certain product providers or which ones they will ban from their next conference is laughable. I have been part of several bank aligned licensees and have never once had an ounce of pressure to write any of their products. They market them, sure, but to call marketing pressure is ridiculous. Our independent research software is exactly that, independent. The licensees have no say as to who shows up and who doesn't. A bad adviser will be a bad adviser whether it be with a bank aligned dealer or otherwise - come back to earth with the rest of us would you? Those sort of sensationalist and nonfactual comments are projecting a terrible image of the sort of advisers out there. Please educate yourself before throwing your two cents in again.

Hi Anne, what happened to the CFP after your name?

Anne Davies what an idiotic reply. "Scum"??? I honestly hope that isn't your real name, because if it is you're showing unfathomable ignorance and exceptionally questionable ethics yourself using that terminology.

My firm is totally IFA/self licensed open APL dealing with acc & solicitors closely with no bias, but even we recognise there are various roles and needs out there and aligned firms play their part.

Your almost incoherent rambling self-justification is of the same one dimensional deluded mentality that says we should kill sharks because they are 'scum' and 'dangerous'. and yet don't respect the role they play in the overall system. Talk about brainwashed, I think you need to get a check on your own zealot hair brained nature.

Oh and for your last idiotic sentence, longevity doesn't equate to professionalism, your understanding of the subject matter and the way you conduct yourself is the litmus test, and quite frankly my dear, you have failed miserably. I actually believe your type are the true cause of much of our professions ills.

(Wow, still flabbergasted that you're not only silly enough to call someone completely unknown 'scum' but also stupendously stupid enough to put your name to it!)

Anne, that is a terrible criticism of Dave. I have forty years experience in the life insurance industry. Dave was making the point that he never feels any pressure from his Licensee to use an aligned insurance company. At times over the years, yes, i have been asked to use more of a particular product range, but have never given in to that pressure. (It was never high pressure anyway!) Indeed, I rarely use the insurer that is owned by the same company as our Licensee. I do my own research, by reading PDSs and policy definitions, as well as software that I largely use for premium comparison only. Often the "aligned" insurer for my clients, never fit, as they have tougher underwriting, especially by occupation, but also health. I find their processing slow, so bypass them for the insurer with the product that I believe best fit's with my client's needs. My primary obligation I believe is to ensure that when the claim comes in, it gets paid. That is why strong definitions are important. I believe that I operate ethically and professionally and have several hundred very happy clients and my claimants are my best advertisement. Am I scum too?

I long respected your opinions on this site but I suspect you'd be in the minority within your licensee. but really, how has Government Intervention and red tape been working out for you? Myself I'm incredibly frustrated at the result that red tape is having on the ability to provide cost effective advice to Australians and in the manner (FASEA) it is now driving out good advisers from our industry. As they say...If you're not part of the solution you're part of the problem. Let me ask you this question. What can YOU control as part of being a professional adviser? I'm assuming we want a profession, especially if we want to reduce Government intervention...e.g FASEA/FOFA/LIF/Royal Commission etc etc. My point is the sooner we rid ourselves of these relationships, as highlighted in this article, most advisers have with product providers, the sooner we will have less Government intervention. Like smoking Bank tellers,things change & it's only a matter of time that advisers will be looking internally at their peers and saying, that relationship you have with XYZ firm is no longer acceptable.

Thanks for your response Anne. The one thing in this industry that I can still control is my own integrity. Yes, I am fed up with red tape and criticism of the industry where most of us are paying for the sins of the few. I have long made the prediction that one day we will all be self licensed, the same as a Lawyer, Medico or Accountant. then we will truly be a profession.

I stand by my comments. I have personal experience with several bank aligned dealer groups that made the business decision to disallow email communications from a competitors platform. Some of the comments here actually shows ignorance. This is nothing to do with servers. It's all to do with a Bank owned dealer group purposely saying to a competitor "do not send emails to our advisers". When questioned about this approach of three bank aligned dealer groups the comments were "our advisers do not want junk mail from XYZ platform so we've restricted communication from XYZ platform" You should ask your Practice Manager (even that is a way to get more FUM) and ask them if they describe emails concerning fee changes to platforms & innovation as junk mail and it will be "yes". Please contact a competing platform provider and ask if emails to your dealer group are restricted. It will be YES. It is very easy for a Bank owned licensee to disallow communications from a competitors platform. I could go on and on of examples of bank owned dealer groups and the things to do. As stated. Senior Management just sit around all day thinking how do we get Mr Adviser in XYZ town to write more business in our platform...Tell freedom of choice of platform is common but it's easy to create a cult. I ask you what colour is your CPD day, orange/blue for ANZ/ING. Is it red for BT and Asgard..Some people need to wake up. To fall for the line of you can use any platform is just stupid. As mentioned I have nothing against AMP or Bank aligned advisers- there is transparency there. The rest are brainwashed cult that are holding advice back.

How spiteful Anne, if you have been in the industry for 20 years I feel sorry for your clients having a cranky old person like you for their adviseress. You should retire, you have had enough.

To call a colleague Scum because they are licensed with a bank aligned group is nothing short of bullying. Twenty years in the industry means you were part of the problem, the next generation of professionals will take it from here Anne, but thanks for playing.

It is little wonder from the comments posted by financial planners that financial planning is not regarded as " Profession ". The sheer ignorance and sense of entitlement from financial planners shows how unprofessional the financial planning industry is. After all that has been exposed by financial services industry commission it is little wonder the public have no respect for financial planners. I spent years getting my education unlike most of the financial planners whom have replied to this article with a 2 week course and then demand to be treated as a professional. What a jock. The Australian public is waking up to all financial planning industries lies and deception. Get a real job and contribute to society and the well being of Australia instead of being a parasite to the Australian people and economy. With any luck after the completion of financial services industry commission financial planners will be consigned to where they should be the garbage bin of history. Financial Planners will never be professional and should be regarded what they actually are pushy salesman selling snake oil no different to used car salesman

Are you serious? "Get a real job and contribute to society" from someone whose moniker is "University Academic" spare me - don't you have an international paper to deliver somewhere exotic, or some pontificating to do?

Academia is THE most corrupt and top heavy industry in the country.

Why such hate and negativity?
Anne I gather you worked as a bank planner and could not meet your kpis and were sacked for under performance. It is good to know you are no longer a bank planner. Your toxic emotional outbursts, display of financial planning ignorance and unprofessionalism lead me to believe you may require some professional help. Anne you are a hypocrite. Happy to get stuck into the banks.. You are happy to promote bank owned product providers as long as it lines your pockets. Happy to borrow money from bank for your house and business. You hate banks so much return the funds your borrowed from the banks. I gather you wont as you are a hypocrite. Picking on an innocent bank planner. Shame on you. As per previous comment there is no CPA after your name unlike me. You do a 2 week course through Kaplan, pay someone on airtasker to do your assignment and then claim to be a financial planning expert. I hope the advice you provided is audited and you are banned by ASIC. I will keep an eye on money management to see the news of you being banned from ASIC. You bring shame on the whole financial planning industry with your conduct and lack of professionalism. Did you work for Dover dealer group?
Anne, how many clients have you charged for reviews you did not conduct? 1 ,2 maybe 3. I do not think it could be much more as you could not make it as a bank planner. Anne please provide your full name, location and afsl and we will report you to ASIC
Anne you should apologise for your unproved attack on bank planners. You should apologise to financial services industry for your unprofessionalism and to your family for the shame you have brought them from your conduct. I hope they can find it in their hearts to forgive you. If you have any self respect you will contact your bank and return all funds you have borrowed and apologise to your bank manager. You should then approach your dealer group and resign to do the financial services industry a favour. But you will not do so as you are a hateful hypocrite

We are very disappointed with your misleading comments about Church of Scientology
You have stated that Scientology is a cult and defamed the name of Church of Scientology.
We would like you to retract your statement about Scientology and provide an apology to the 150,000 Australian and 10,000,000 world wide Scientologists
Should you fail to retract your comments and issue an apology in a timely manner we will commence legal proceedings against you.
The Church of Scientology will encourage a boycott of services provided by your business and communicate this to our members
We would be more then happy to extend you an invitation to visit to a Church of Scientology so you can see what the church is all about
Only through knowledge can we receive enlightenment. We look forward to your visit
Please call 02 9267 6772 to organise appointment visit and to discuss your apology
We will be waiting for your call Anne Davies
Church of Scientology

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