Advice – Free From the Ties That Bind
The Australian Securities and Investments Commission (‘ASIC’) is the Government body in charge of regulating financial planning in Australia. ASIC has been in the news lately, talking about its recent investigation into the financial advice services provided by Australia’s big banks, including the AMP.
The report makes for gloomy reading: more than 200,000 customers were charged fees for services they simply did not receive. By banks. Banks are not your friend.
Australian financial planners operate under the authority of what is called an Australian Financial Services Licence (‘AFSL’). These licences are issued by ASIC. Holders of an AFSL are known as licencees. Each of the big 4 banks (NAB, Westpac, Commonwealth and the ANZ) holds an AFSL, as do all of the second tier banks such as Bendigo Bank and the Bank of Queensland. AMP holds one as well. Some of the banks own more than one AFSL, as they have various subsidiaries that they have acquired over the years.
It is estimated that as many as 85% of all financial planners in Australia operate under the authority of one of the big banks’ (including AMP) AFSL.
These financial planners are known as ‘aligned’ planners. This is because the AFSL under which they operate shares common ownership with an institution that also provides financial products such as life insurance or managed funds. The bank owns the AFSL and it owns the products being recommended by advisers within that AFSL. You can see the obvious problem here: the aligned financial planner is much more likely to recommend that clients buy the product issued by their own institution than they are to recommend another product, even if that other product better suits their clients’ needs. An AMP representative will recommend AMP products. A Westpac adviser will recommend Westpac products. End of story.
As financial advisers ourselves, we need to operate under the authority of an AFSL. When we went looking for an AFSL under which to operate, we looked specifically for an AFSL that was ‘non-aligned.’ Non-aligned means the opposite of aligned: an AFSL that is not tied to any provider of financial products. No bank AFSL for us. We did this because we want to be genuine advisers. We want to make sure that our licencee does not pressure us to sell a specific product, or a specific amount of product, to clients who trust us. We were looking for an AFSL that allows us to operate a practice where we are free to recommend anything that we truly think is in our client’s best interests – no matter which institution is offering it. We wanted to avoid working for an institution that charges people for work it never performed.
This means we can be real advisers. We can look our clients in the eye and tell them honestly that the advice we have given them is what we would do if we were in their shoes. ‘What I would do if I were you’ is the only way to be a proper adviser.
I have to admit, though, sometimes I can be a bit jealous of aligned advisers. Sometimes I think it would be great to see my AFSL’s name being touted around – splashed across the backs of Australia’s one day cricketers, or sponsoring an elephant enclosure at the zoo. And it would be nice to get some free tickets to things like the Australian Open.
But then I remember – it is the bank’s clients who pay for those ads. And the real cost of being with an aligned AFSL is that I would be working for the bank. A bank which is not covering itself in much glory these days. 200,000 people paid for a service they did not receive. If I was aligned, my clients might be among them.