One-in-10 investors were even said to be in a “significantly worse financial position” after following the advice.
The review, carried out by the Australian Securities and Investments Commission, focused on the products CBA, Westpac, ANZ, NAB and AMP recommend and discovered that in three-quarters of the cases, the advice to move to an in-house product was not in the best interest of clients.
The term ‘in-house’ covers products that are provided by a related party such as the bank or other financial institution the adviser is employed by, and can be anything from mortgage to investment or life-insurance products.
A clear leaning towards recommending in-house products exists in most cases, according to the review, which concludes “conflicts of interest are inherent in vertically integrated firms”.
It said “79 per cent of the financial products on the firms’ approved products lists (APL) were external products and 21 per cent were internal or ‘in-house’ products. However, 68 per cent of clients’ funds were invested in in-house products.”
And the advice to shift to one of the bank’s own products overwhelmingly conflicted with best-practice.
“ASIC found that in 75 per cent of the advice files reviewed, the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10 per cent of the advice reviewed was likely to leave the customer in a significantly worse financial position,” the report said.
“ASIC will ensure that appropriate customer remediation takes place.”
The investigators concluded they would focus on increasing transparent reporting requirements in the industry, which would improve the management of the “conflicts of interest that are inherent in these businesses”.
The report follows news CBA, which is expected to soon name its new chief executive, is expected to pay out $1.9 million in compensation over poor advice provided by five financial planners to 3500 customers.
Acting ASIC chair Peter Kell said the watchdog was already working with the big financial institutions to address the issues identified in the report on quality of advice and management of conflicts of interest.
“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.
Article by Chris Kohler for Domain