A review of advice by the big four banks and AMP found that 75% of advice to switch to in-house superannuation platforms was non-compliant.
ASIC has been conducting a review of vertically integrated financial institutions and conflicts of interest. The review involved the big four banks (ANZ, CBA, NAB and Westpac) and AMP and occurred between 2015 and 2017.
An examination of advice on in-house superannuation platforms by the regulator found that 75% did not demonstrate compliance with the duty to act in the best interest of clients. ASIC notes that this does not mean all these customers were left significantly worse off by the advice.
“In 10% of the sample advice files, we had significant concerns about the impact of the non-compliant advice on the customer’s financial situation.”
“We were significantly concerned because, for these customers, switching to the new superannuation platform resulted in inferior insurance arrangements and/or a significant increase in ongoing product fees—without additional benefits being identified that were consistent with the customer’s relevant circumstances.”
The review also that found that 68% of clients’ funds were invested in the internal, ‘in-house’, products of the financial institutions. This is despite only 21% of products on Approved Product Lists (APLs) being in-house products.
ASIC found the split between internal and external product sales varied across licensees and different types of products – for instance, 91% of total funds in platforms was in in-house products, and 69% of superannuation and pension products.
“In most cases there was a clear weighting in the products recommended by advisers towards in-house products.”
ASIC said that vertical integration can provide benefits, but it also involves “inherent” conflicts of interest.
“ASIC will consult with the financial advice industry (and other relevant groups) 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. ASIC noted that any such requirement is likely to cover vertically integrated firms beyond those included in this review. The introduction of reporting requirements would improve transparency around management of the conflicts of interests that are inherent in these businesses. ”
ASIC warned other vertically integrated firms that they should carefully examine the findings of the review.
“While this review focused on five major financial services firms, the lessons should be considered by all vertically integrated firms in the financial services sector.”
Acting ASIC Chair Peter Kell said the regulator was already working with the major financial institutions to address the issues identified.
“There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes, and the results of this review will feed into that work,” said Mr Kell.