The corporate regulator issued a report yesterday outlining the findings of its review of financial advice provided by subsidiaries of institutions CBA, NAB, ANZ, AMP and Westpac, as part of its broader Wealth Management Project on vertical integration conflicts in the sector.
The review – conducted between 2015 and 2017 – found that 68 per cent of all client funds across these businesses were invested in financial products owned and operated by related entities.
The finding comes despite the fact that 79 per cent of financial products across the reviewed licensees’ approved product lists were external, with just 21 per cent made up of in-house products.
While the behaviour differed across licensees, “in most cases there was a clear weighting in the products recommended by advisers towards in-house products”.
Moreover, a review of samples files where advice to switch products to an in-house product was provided found that in 75 per cent of cases the FOFA best interests duty was not complied with.
ASIC will now “consult with the financial advice industry” on a proposal to “introduce more transparent public reporting on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business”, said a statement from the regulator.
The licensees reviewed in this investigation were AMP Financial Planning, Charter Financial Planning (AMP), Millennium3 (ANZ and soon to be IOOF), ANZ Financial Planning, Commonwealth Financial Planning (CBA), Count Financial (CBA), GWM Adviser Services (NAB), NAB Financial Planning, Securitor (Westpac) and Westpac Financial Planning.
However, ASIC deputy chairman Peter Kell said any remedy would likely involve licensees beyond those mentioned.
In response, analyst Lafitani Sotiriou of Bell Potter Securities issued an investor note arguing the report is bad news for AMP and IOOF, which recently purchased the Millennium3 business from ANZ among other wealth subsidiaries.
“The old fully-integrated model is dying, and [IOOF] has totally mistimed its ANZ Wealth acquisition (IOOF won’t get the keys to the business until the end of this calendar year),” Mr Sotiriou said.
“This is also bad for AMP, which has a heavy reliance on in-house platform and product sales. Further, it highlights why more advisers are turning to independent platforms and seeking self-licensing.”