Michael Pascoe writes:
With the financial planning industry still
reeling from the Westpoint scandal, ASIC today lobs another hand grenade into
the heart of the conflicts of interest that bedevil this commission-driven
The good news from ASIC’s “shadow-shopping” test drive of 259 financial advisers on
superannuation is that in two-thirds of cases where the advisers had a conflict
of interest, they were still able to give reasonable advice.
The bad news is the clear corollary – stand
between a conflicted adviser and a bag of money and one third of the time,
you’ll be dudded. Who’d be silly enough to take those odds?
“Advice that was clearly or probably non-compliant
was about six times more common where the adviser had an actual conflict of
interest over remuneration”, says the ASIC report.
“Where the adviser had a conflict over
remuneration, 28% of advice clearly did not have a reasonable basis and
a further 7% probably did not. In contrast, where the adviser did not
have a conflict, the percentages were 5% and 1% respectively.”
So, incompetence results in unreasonable
advice 6% of the time, but greed and conflicts of interest will rob you
in 33% of cases.
When advisers recommended swapping super
funds, surprise, surprise, 62% recommended a fund with higher fees
while only 22% recommended a lower fee fund. There’s some serious money
involved in this for clients. In the cases where ASIC judged the advice to swap
funds was unreasonable, the watchdog calculated the average difference in
retirement benefits was a loss of $37,043 or 16%.
ASIC doesn’t call that theft, but I’m happy
to. The problem for consumers and for the
majority of financial advisers who aren’t criminals is that there is no way of
knowing which of the conflicted advisers are crooks. Working on the odds of
one-in-three, you’d have to stay away from advisers working on commission and
those with a licensing arrangement that links them to a product provider. And
that’s the majority of the industry.
The scandal of advisers taking fat
commissions to drop punters in the
Westpoint mess has been enough to cause
some soul-searching in the financial planning industry about the current
commission model. This ASIC study should be enough to just about finish it off.