I wish I was surprised.
I dearly wish I was shaken to my core, convinced it was a mistake.
I mean, it should be too fanciful to be true.
In a country like Australia, with our respect for the rule of law. With a world-class regulatory environment.
With political parties that care about our citizens; and governments, of both stripes, who make laws to stop people taking advantage of us.
And an association representing professionals who put clients' best interests first.
Back to reality
It gives me no joy to write this. Because people's livelihoods and financial futures are being screwed with.
By the very people whose job — and profession — it is to act in our best interests.
And it was laid bare by the corporate cop, the Australian Securities and Investments Commission (ASIC).
The worst part? It hardly made headlines.
Maybe people didn't care. Maybe we just aren't surprised. More's the pity.
Here's the tale of woe, in bite-sized chunks, thanks to the Sydney Morning Herald:
Let's start with the headline:
That seems pretty clear.
And the detail:
"Most financial planners at major banks and AMP failed to act in their customers' best interests when advising people to put their retirement savings with an in-house superannuation fund, a damning review has found."
And:
"…for one in ten customers, that advice on super left customers in a "significantly worse financial position"…"
Then there's:
"When it looked specifically at customers who were advised to switch their superannuation to a fund run by the advisers' employer, ASIC found 75 per cent of this advice was "non-compliant" with the "best interests duty.""
And:
"ASIC said conflicts of interest were "inherent" in vertically-integrated firms"
Vertically-integrated firms are the ones where the planner works for a business owned by, or franchised by a bank or other institution, and/or which has the 'approved products' list set by a bank or other institution…. You get the idea.
ASIC wasn't finished. Again, quoting the SMH article:
"It found that 79 per cent of the financial products on "approved product lists" were manufactured externally, but 68 per cent of clients' money was invested with in-house products."
An awful tale of woe
Let's just repeat some of that for emphasis.
Three out of every four pieces of advice was not in the client's best interest.
Despite only 1 in 5 products being 'internal', more than two-thirds of the money went there.
(You could try to argue that it's possible one bank had 'best' products and its advisers were right to direct client money there. But it's literally impossible for all of the banks to each have the 'best' product… by definition.)
And one in ten customers was made objectively worse off because of the advice they received.
I call bullshit. I was going to use a more delicate term, but none fits. If you're offended, I apologise, but if you're more offended by that word than what the financial industry, writ-large, is doing to you, your parents, children, neighbours… then can I — respectfully — suggest your priorities may be wrong.
Which is precisely the allegation I level at the financial planning industry in particular and the broader finance industry in general.
What did the Financial Services Council say, in response? According to the SMH, it said:
"…ASIC had found files to be "non-compliant" based on "its own interpretation" of how to apply the best interest duty, without consulting advisers or consumers."
Its. Own. Interpretation.
Yep, if only the interpretation was different, ASIC would see just how those stats were actually completely incorrect. Honestly, there's a very good reason each bank's planning employees told clients that its products were best.
It's just all a huge misunderstanding. Once we explain, you'll reverse your report, give us a gold star, and we'll all go out for a long boozy lunch. Trust us.
It would be funny if it wasn't true
In its submission to the 2014 parliamentary inquiry, the financial planners' association wrote:
"…the catch-all provision of the best interests duty has created uncertainty, significant litigation risk, and an artificial approach to regulating financial advice…"
In the end — thanks to some fierce lobbying by Choice, The Motley Fool, and others, the 'best interests' duty was kept. The sky didn't fall in.
Well, not for planners, anyway. Clients weren't so lucky, with three out of four failing to receive advice that, according to ASIC, meets the 'best interests' standard.
I'm pained to say that this is maybe the eighth or tenth email I've written in the past few years, criticising the fundamentally broken nature of the financial services industry.
And little has changed
I feel great about the fight we took up to the vested interests when the federal government was going to roll-back investor protections. I like to think our voice — and the voices of our members and readers — helped win that fight.
But here we are, years later, and ASIC is telling us, in unusually unvarnished language, that the system is broken.
Every time I write one of these articles, I get angry emails from financial planners. I think in the entire time I've been doing it, I've only received one email from a planner who agreed with me.
And yes, there are good planners. There are great planners. The really great ones are adding their voices to calls for reform.
I don't want this article to dissuade you from seeking financial planning help. There are times when such help is invaluable, even vital.
Get a will. Get insurance. Plan for your retirement. These things are really important.
But find a great planner first. Yes, it takes time. Yes, you'll have to pay fees. But what's worse? Spending a day and a few hundred bucks looking for a great planner… or being one of the 75% of people who didn't get advice that was in their best interest?
It's the latter that's truly expensive and time-wasting.
You know what's really annoying? If nothing changes, I'll probably be writing the same thing in six or twelve months' time.
ASIC has belled the cat
It's time for the government to tighten the rules, and potentially break the nexus of vertically integrated advice. The only people a planner works for should be her customers.
It's time for the Financial Planning Association to truly lift its members to the standard — and standing — of doctors and lawyers by refusing to accredit advisers who work for firms owned or controlled by large institutions (called 'product manufacturers' in the industry lingo), and who are paid by, or received support from, anyone other than customers.
You reckon a doctor would work in a general practice owned by one of the drug companies?
And if she did, would you go there?
I didn't think so.
Many tens of thousands of people are reading this email. If ASIC's report is representative, three-quarters of you who are customers of bank-owned planners, are getting advice that isn't in your best interests.
If that's not a scandal, I don't know what is.
The solution: Find an independent planner. Pay by the hour (not a trailing fee that is deducted every year until kingdom come). Ask why they're recommending 'house' products, whether or not they get an added incentive, and ask them to compare those products to the next best alternatives.
We won the war to keep investor protections. Now we need to fight to have them enforced.
We'll be here, fighting for you. Make sure you fight for your rights, too.
