The Association of Independently Owned Financial Professionals (AIOFP) has called on the Federal Government to reintroduce a disclosure regime for vertically integrated planning groups and for the equal prosecution of executives within institutions who have overseen poor advice.
In an open letter sent to the Minister for Financial Services Mathias Cormann and the Australian Securities and Investments Commission chair Greg Medcraft, the AIOFP stated the recent issues relating to Commonwealth Financial Planning (CommFP) "has highlighted some inconsistencies in the culture and fabric of the industry".
AIOFP executive director Peter Johnston stated that financial planning groups operating under vertically integrated model were still conflicted and were also not actively disclosing this conflict to people seeking financial planning advice.
Johnston said that despite efforts by ASIC and the Future of Financial Advice legislation to remove conflicts of interest "the banks, life offices and industry funds can continue to operate the most profoundly conflicted structure of all, Vertically Integrated Models".
He claimed these models were "being used to cross subsidise advice with in house product sales using in house advisers, regardless of their appropriateness for the clients position" and that this was an industry wide issue with institutionally aligned advisers posing as independent advisers but only offering institutional products.
Johnston called for the reintroduction of a disclosure regime for vertically integrated planning groups in which they would indicate their institutional ownership on all marketing material, letterheads and business cards.
He said this had been required by regulations 2005 but was quietly phased out leading to consumers receiving conflicted advice from advisers offering inhouse products.
"Transparency, clarity and honesty are the very foundation tenets of a client/adviser relationship, the CommFP fiasco is a compelling example of why that regulatory disclosure requirement should be re — introduced. The AIOFP has no objection with consumers dealing with institutions, we just think they should be aware from the outset."
Johnston also urged Cormann and Medcraft to examine why the owners of non-aligned planning practices were removed from the industry after breaching regulations while executives involved with advice within institutions are not held to account in the same way.
"Those responsible are generally unknown outside of the institution and they are able to move into another industry role perpetuating the same culture of bad or self — interested advice which was the cause of the problem in the first place. If the Government is serious about ongoing industry governance these guilty institutional Executives should also be treated in the same manner as independent executives."