Financial Planning

Confusion Over Financial Planner Independence

Mortgage One - Monday, August 08, 2011

Questions are being raised about the independence of the biggest financial groups.

 Financial plannersworking for the Banks, AMP & AXA or part of their large dealer groups have a propensity to recommend their own products according to a survey by Roy Morgan Research of 250,000 financial planning clients over the past 5 years.

Advisers from AMP have directed over 80% to their own fund manager while ANZ have been the least with only 45.3% being directed internally.

While AXA saw a decrease of 7.3% in the latest period, this can largely be explained by a large increase in the proportion of funds being directed towards superannuation by their advisers. This is not unexpected given that in late 2009, AXA announced that it had completed the purchase of self-managed superannuation provider Multiport, which would likely be receiving the bulk of this difference

Own Product Bias

An industry communications director at Roy Morgan Research, Norman Morris says “While most who visit a financial planner under the banner of a major wealth company are aware of their ties, confusion continues around those who many perceive are independent, but are actually aligned. Given that these planners will likely still be tied to the groups Approved Product List (APL), it raises the issue of how informed consumers are to this potential conflict.

This should not come as any surprise seeing the Banks, AMP & AXA have invested millions in building these vertically integrated product manufacturing and distribution models.

Independence

The survey found that there was considerable confusion about the planners’ independence amongst clients of planners that brand differed from their parent. About half of all Hillross (AMP Brand), Garvan (NAB Brand), Godfrey Pembroke (NAB Brand) and Financial Wisdom (CBA Brand) clients thought their planner was independent.

Norman Morris says “For a client that may be entering an advice relationship on the premise that the financial planner they are visiting is independent of any major financial institution, however this is clearly not always the case and the lack of independence regarding these planner’s approved products raises the question of whether the best interests of the client are always being served.”

The law requires planners to disclose via their Financial Services Guide (FSG) any links they have to product providers and ownership, however these links are sometimes not made sufficiently clear to clients.

Open your Eyes

The vast majority of financial planners have some link to about a dozen dealer group with some connection  to a product provider that provide greater access to products and investment platforms. However, the chief executive of the Association of Financial Advisers, Richard Klipin, says good advice is offered across the market and is not dependant on ownership structure.

The key document to view is the Financial Services Guide (FSG) which will disclose any conflicts that might arise. The FSG discloses the ownership and remuneration and if there are any restrictions on the advice they can give or products they can recommend.

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