Advice licensees in all vertically integrated businesses should regularly analyse which products, including insurance, from their approved product lists are being recommended by their advisers, says the corporate regulator, the Australian Securities & Investments Commission (ASIC).
Advice licensees should assess why their advisers are recommending such a large proportion of customer funds to be invested in in-house products, and whether all the necessary controls are in place and working effectively to ensure that conflicts of interest are appropriately managed, says ASIC. It is likely that trends and exceptions identified through such analysis would alert the licensee to potential issues that may require further inquiries.
The corporate regulator says that its investigation into financial advice businesses owned by the major financial institutions has found areas for improvement in the mitigation of conflicts of interest. It reviewed 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.
A report released last week outlining the findings of its review – conducted between 2015 and 2017 – says that 68% of all client funds across these businesses were invested in financial products owned and operated by related entities. This was despite the fact that 79% of financial products across the reviewed licensees’ approved product lists were external, with just 21% 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”, says the report.
ASIC says that it 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.
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