The strength of the relationships between financial services product providers and advice groups is what is tainting the advice process and creating the lack of consumer confidence in the industry, according to the latest submission to the parliamentary inquiry.
Sydney-based planning firm Quantum Financial Services has stated in its submission to the joint committee inquiry into financial products and services that the industry is suffering from “fundamental structural problems” characterised by “insidious hidden payments”.
Quantum Financial Services, led by chief executive Bill Mackay, argued that in order for consumers to be able to trust financial planners, the industry must act “more clearly in the interests of consumers”. One of the concerns the group has is the structure of the industry, in particular, the strength of the relationships between financial product manufacturers and financial planning dealer groups.
Quantum argued that product manufacturers have powerful incentives that allow them to influence the advice given by financial planners. It believes it is this relationship that taints the advice process and “decreases consumer confidence in the whole industry”.
The group pointed to the use of volume bonuses and “other profit sharing arrangements such as platform rebates” as ways in which product providers “actively seek to influence financial planners”.
The group calls them “kickbacks paid to advisers and [Australian Financial Service Licencees] in all but name, pure and simple”.
It believes these strategies, as well as other fee sharing arrangements and soft dollar benefits, are strategies that are “largely hidden to consumers”.
The group also raised concerns with buyer of last resort arrangements in which the price paid for a financial planning business will “multiply in line with business generated by the planner for that fund manager”.
Also of concern to Quantum is the ownership of financial planning firms by product providers, which the group said more easily allows for control to be exerted over the “supposedly independent advice process”. Practices that can influence the advice process, the submission stated, are “approved product lists that make the firms’ products easier to invest in”, staff-targeted volume bonuses and particular types of research provided to planners on owners’ products.
While the group does currently accept commissions within its business, it said it would like to see the industry confront this problem.
