The Australian financial planning market is facing something of a crisis this month as a Royal Commission into misconduct in the banking, superannuation and financial services industry is set to report on widespread failure across the entire Australian financial planning industry. The Australian financial planning sector has already been battered by mis-selling scandals and violations of the ‘best interest’ duty of financial providers in Australia.
Australia financial planning under regulatory scrutiny
Peter Kell, the deputy chair of the Australian Securities and Investments Commission (ASIC) recently asked an independent expert to review the quality of financial advice that had been provided by 137 licensees to self-managed super funds and found that 90% failed to comply with the best interests of their clients. ASIC is particularly concerned about the fact that advisers are funneling Australians into less suitable in-house products, possibly because these advisers are being rewarded for doing so.
“Customers are likely to think twice about the type of provider they opt for,” says Heike van den Hoevel, who is a wealth management analyst with Global Data. “This will drive the growth of the independent advice market. Even demographics that are not typically drawn to independent financial advisers will find themselves more likely to opt for independent financial advice when they learn their trusted banking partner has been pushing products that are not in their best interests.”
The Australian wealth management industry is still dominated by the big names in Australian banking, namely Commonwealth Bank of Australia, ANZ (Australia and New Zealand Banking Group), National Australia Bank and Westpac Banking. However that looks likely to change if it can be proved that banks are possibly not the best place to have your assets invested.
“Australia’s big incumbents engage in both the provision of personal advice and the manufacture and sale of financial products, such as superannuation and insurance,” adds van den Hoevel. “Transitioning away from the vertically integrated model into a conflict-free model seems increasingly likely. This will be the biggest change to the industry since the big four banks moved into the wealth space more than 15 years ago.”
Some of the Australian banks are already looking at getting out of investments and pensions, possibly because they can see the writing on the wall. ANZ, for example, sold its OnePath Pensions and Investments business to IOOF and CBA has divested its insurance business to CommInsure Life.
A familiar pattern of failing investors
It is a pattern we have seen before in other wealth management and financial planning markets, the transition from banks, which start by looking after your cash but go on to wanting to sell you higher earning investment and insurance products. But banks cannot be the best port of call for absolutely all your finances. Inevitably regulators and consumers realise that they are being funneled into products that are not suited to them, but suit the bottom line of the banks.
For Australians, this shake up means that many will be contemplating their options, either to look for independent (i.e. non-bank) financial advice or selecting products themselves, and doing some independent research.