Vertical integration still problematic for advice

Vertically-integrated financial services businesses continue to be a problem for the financial planning industry, particularly where they are seen to be recommending their own products, according to Certainty Advice Group principal, Jim Stackhouse.

Referencing recent media coverage of the Evans Dixon product, the US Masters Residential Property Fund, Stackhouse said he believed the laws continued to fall short of protecting consumers from vertically-integrated business models.

He said that, as well, too many clients trusted that their advisers had done appropriate due diligence on the products they were recommending.

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“That is what people pay for. And when they’re getting poor advice, they still don’t leave,” Stackhouse said.

“There are often high fees on turnover of assets, which make it harder to close funds. People are busy, they don’t have time to do all the research, and they trust their adviser to do the right thing. And a lot of these institutions know this,” he said.

Also referencing the recent media reports, Albury based Certified Financial Planner (CFP), Anne-Marie Humphries said she believed the problem about conflicted advice was that it was about ticking boxes.

“Vertically integrated institutions know how to tick the compliance boxes under the existing framework to protect themselves, while still recommending ‘in-house’ products to their clients. It may not be the best option for the client, but it’s legal, and they can do it,” she said.

For his part, Stackhouse said he believed that trust in financial advice could not be built when conflicts were present.

“It all comes down to how advisers are paid – disclosure is not enough,” he said. “Renumeration structures drive culture; unconflicted remuneration where clients pay for advice directly rather than advisers being paid from products is the best way.”




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Vertical integration, was, and is, the biggest problem in financial advice. Moronic Hayne and his media tart sidekicks couldn't see it. They had the perfect opportunity to get rid of vertical integration and did nothing. They were so focused on generating outrage fodder for the trash media they lost sight of the need for underlying structural reform.

Sure, the big banks might be offloading their advice businesses. But those advice businesses are still tied to inhouse products of the new owner, or even worse, the former owner via hidden "referral" arrangements. Nothing has changed structurally. The only benefit for consumers has been the small number of advisers who have abandoned the vertically integrated "dealer groups". But those advisers are still in the minority.

The biggest problem in advice is all the holier than thou white ants that try to pump themselves up by putting others and at times the whole industry down. We are our worst enemy and always have been!

Couldn't agree more 'Hang'.

I'm sick of the so-called IFAs professing to be the greatest thing since sliced bread. There is plenty of room for all us to operate, and BOTH models have their pro's and con's

what do you mean 'both' models - I thought we were all bound by best interests, therefore business models don't matter?

Industry Super operates under "General Advice" very happily. Have a look at some of their websites CBUS etc and see what they say about Financial Planning - it goes along the lines of "simple Financial Advice" over the phone and can help with Contributions to super, determining appropriate amounts of Insurance cover, determine appropriate death benefits, investment options etc. In my simple mind, this is Financial Advice and Product sales all wrapped up in General Advice - and it is free to the member as they pay for it from the Admin Fee - and so does every member no matter if they use the service or not (Fee for no service?). If you want "Complex Financial Advice" they will do it for a fee - but that fee could be anything really as they have that lovely admin fee to pay the wages/salaries, office expenses (and everything else) for the Financial Planning department so they could charge $1.00 upfront and no ongoing and still make payroll and office expenses. And guess what fund an employee Adviser will recommend? See any issues? ASIC does not as ASIC I believe has NEVER investigated Industry Super. I would expect AMP and the Banks will follow this model in the future and self employed/privately owned Financial Planning practices will reduce in number dramatically - all to help the retail client I am told.

I don't know how they call ''can help with Contributions to super, determining appropriate amounts of Insurance cover, determine appropriate death benefits, investment options etc. '' General Advice. It is not, it's personal advice and should be put in an SOA. It's certainly how my licensee would assess me.

You should look at how and why Industry Super does what they do.

Yeah I understand, I just can't control it but do hope there is a level playing field at some point. The concept of best interests as a legal tool is so these cases could be pursued - we'll see in the next 2 years if the regulator is fair dinkum

I once hopes for a level playing field but I was young. ASIC has had since 1992 to investigate the Industry Funds as has not but ASIC has stated (in a Senate hearing committee I believe) that they do not expect any issues with Industry Super - how they have that opinion on no evidence is amazing - I hope it's not from the TV ads? ASIC I believe is completely agenda driven. Also a worry our new minister believes Superman is real and working at ASIC. I hold little hope for a level playing field anytime soon.

Remember, in legislation intra-fund advice had a best interest duty “carve-out” so industry fund can exploit this to provide personalised advice. The fact of life now is that there will NEVER be a level playing field and it is only a matter of time before the banks/AMP go do this same path. ASIC are pathetic as they have been blindsided by how intra-fund advice is being games and cannot admit this without spotlighting how they actively protect industry super funds.

Yes, I was hoping since we helped get the LNP reelected and the removal of industry super as default under legislation may change this, but it is hope. I think the FPA/AFA should JV a super fund with Aust Super or someone and then we can advise all small clients into it without actually giving advice and then use it as a lobby tool like the rest of them.

Anne-Marie is spot on here. So much 'compliant' advice provided by vertically integrated firms where they were never going to leave the client in a better position but they were able to tick the boxes. Meanwhile, other firms could be providing massive benefit to a client but if they forgot to tick one irrelevant compliance box they get stung and banned.

Industry needs some fixing, but that starts with the regulator.

Completely agree that vertical integration is something to be looked at, but the notion "Independent" firms don't have favoured products for efficiency purposes would be a lie. I've worked for plenty of independent firms and they largely use white-label products or major wrap platforms and 90% of the clients would have been recommended onto these platforms. Which probably isn't much different to vertical integration.

Not that I'm in favour of VI, I'm just trying to have a balanced discussion that APL's in general tend to favour the business not the customer/client.

When a non vertically integrated firm uses a preferred product or platform for a given set of client requirements, they have the freedom to choose which product or provider in the first place based on quality and service issues. They have the flexibility to change provider if standards slip or something significantly better comes along.

Vertically integrated practices have far less freedom. While it is now much harder to overtly force aligned advisers to use inhouse products, there is still a range of carrot/stick methods to ensure it happens in practice. "Weaponised compliance" being an increasingly popular technique.

What about the most vertically integrated conflicted business model of all, that has ASIC's protection and tick of approval- Industry Super Funds? Especially those ISA funds that have their own in-house 'investments' and do deals for direct property built by union run labour force etc?

Vertical integration is not illegal. Conflicted Remuneration is the real issue here. I would think that the smaller/medium size practices are more conflicted than the banks in terms of conflicted remuneration. E.g Financial Planner recommends their in-house accountant to set up SMSF. The firm clips a ticket from FP's advice and also Accountant's fees on setting up SMSF, and because it's a self-employed/partnership firm, whatever the business earns, the business partners (FP's, accountants) also earns. Whereas the bank planner's salary does not increase because they recommended a bank product. Bonuses are long gone.

all leads back to best interests. Conflicted remuneration exists and in some degree will always exist, hence Best Interests must override that. They have/are legislating out key forms of conflicted rem such as volume override on platforms etc. Best Interests is as I understand it not legally defined but will be ultimately tested in courts.

Wait hang on, firstly get your own moniker. Secondly don't assume anything! You ASSUME IFAs have in house accountants, totally incorrect. This proves my point from a few days ago exactly. White ants, white ants everywhere, assuming all this stuff to make points that are totally unfounded, and incorrect. I have been a EM of a bank sales team, and I now have my own unaligned small practice. I know the difference between both worlds. I also know there are good people everywhere in the industry, and this he does she does crap needs to stop.

The example you described is not actually conflicted remuneration from ASIC's perspective. ASIC doesn't care how much unnecessary, overpriced, inhouse advice and service a client is charged for, as long as the client pays directly by fee.

But if an adviser recommends a third party insurance product which is totally appropriate for the client's needs, and allows the client to pay for advice and implementation costs gradually over time via fixed industry standard commission rates, that's conflicted remuneration.

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