ASIC finds banks are working against customers’ best interests

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The Australian Securities and Investments Commission (ASIC) has revealed evidence of banks working against the best interests of their customers, offering advice that is purely self-serving.

The ASIC investigation into conflicts of interest apparent within the Big Four banks and AMP showed that these financial institutions failed to pass the ‘best interests test’, with which they are legally required to comply.

The Big Four plus one, ANZ, CommBank, NAB, Westpac and AMP, now known as the Big Five, were targeted because they are vertically integrated organisations, meaning that they sell financial products, such as superannuation and insurance, as well as other advice services.

ASIC reviewed the advice and products these institutions were recommending, and found that there is much room for improvement.

Overall, 79 per cent of the financial products on the firms’ ‘approved products lists’ (APL) were external products and 21 per cent were ‘in-house’, or internal products.

But while a lot of external products were listed, the report revealed that a massive 68 per cent of clients’ funds were invested in internal products.

In most cases there is evidence of biased recommendations towards in-house products.

There appears to be little progress from the previous ASIC ‘shadow shopping’ report on poor financial advice, released in 2012. Back then ASIC Commissioner, Peter Kell stated:

‘The results of ASIC’s shadow shopping research demonstrate that there is scope for significant improvement in the provision of good quality retirement advice in Australia. Our research found there are several areas where the financial advice industry needs to lift its game.

Yesterday Mr Kell, now Acting chair of ASIC, seemed to be saying the same thing:

“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.”

While ASIC stated that vertical integration may not always be detrimental to the customer, it did find that these in-house products failed to serve the customer’s best interests. In fact, 75 per cent of the files reviewed proved that advisers did not act in the best interests of the customer and 10 per cent those cases showed that customers were significantly worse off.

According to ASIC: “Conflicts of interest are inherent in vertically integrated firms, and these firms still need to properly manage conflicts of interest in their advisory arms and ensure good quality advice.”

“ASIC will consult with the financial advice industry (and other relevant groups) on a proposal to introduce more transparent public reporting on approved product lists, including where client funds are invested, by advice licensees that are part of a vertically integrated business.

“The introduction of reporting requirements would improve transparency around management of the conflicts of interests that are inherent in these businesses.”

ASIC is working with the financial institutions in question, to address quality of advice and management of conflicts of interest, and will continue to ban advisers with serious compliance failings.

One wonders if the same failure in bank compliance and a regulator which wrings its hands, but refuses to act will be reported in another six years? The Royal Commission will have its work cut out.

Read the ASIC report

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Written by Leon Della Bosca

Leon Della Bosca is a voracious reader who loves words. You'll often find him spending time in galleries, writing, designing, painting, drawing, or photographing and documenting street art. He has a publishing and graphic design background and loves movies and music, but then, who doesn’t?



Total Comments: 11
  1. 0

    As long as they work in my best interest to increase share price and dividends, that’s all that matters

  2. 0

    OK, Raphael. Perhaps you should invest in one of the Big Bikie Gangs where your dividends could be even higher.

  3. 0

    OMG, how much did this study cost? Is there a person in Australia who did not already know this? I read about a grant of $35,000 given to a university lecturer to study the best way to chill beer and keep it chilled. He bought lots of beer, fridges, ice and CO2 canisters and wrote a paper at the end. His money was probably better spent than the money spent on this study on banks.

    • 0

      Quite right Old Man. Who goes into McDonalds and comes out with a Hungry Jacks burger?

    • 0

      Nah….. old man . you you are way way off the mark, and speaking from a position of well, maybe a good luck story, I haven’t a clue , but everything rotten with society today is because of profiteering by banks. Its always been there but now it is an insidious thing. Since the day the banks got everyone’s’ pay packet directly paid into the bank account , was the day the general public lost control. Its the day that led to small fee’s and they are everywhere, token changes at ATM’s mean nothing, its like the person who would be able to devise some way of getting 1 cent of every person with money in the bank once a year from all over the world. They’d be bloody rich.
      Its stealing, total stealing , charges like that are doubled up all the time, a dollar here on your online acc. another couple over here, a bit there and the next thing you know the banks are doing exactly what I’ve said, and they are.
      They steal money from every individual, thats banks all over the world. It is a fact.
      So we NEED a bloody great “hammering hard” Royal Commission into the thievery and crookedness of the banking system.
      This won’t happen because the establishment will set the rules and the banks will walk away scott free, like Bill Shorten did from the Union farce that let him off the hook.
      Privileged upper class wanna be he is now.
      We do really need a hard line attack on the robbers in the establishment , one thing about Donald Trump, he may be rich but he is not establishment, I reckon he could kick the banks in the teeth , just for the sake of his own people, because our thieving mongrels do nothing but sit and then still do nothing. There are too many COWARDS in all parties in this country, COWARDS!

  4. 0

    A commissioner of declaration ( aka bank manager ) must put the interest of the public first over the bank they work for when assessing a loan application. Oh, this is why ASIC are involved.

  5. 0

    Banks work only in their own interests. Bring on a Royal Commission with real teeth!

    • 0

      Geez, Knows a Lot, who would have ever guessed banks were trying to make a profit? Like all nongs from the Left, do you really think that free enterprise (as represented by the banks), are there just to provide a community service? Wake up! Just as unions were established to represent the worker – oh, with the notable exception of one B Shorten who screwed his members – banks are there as a safe haven to protect your hard earned, and to generate a healthy income stream for shareholders, which includes most of us. This royal commission will be an unnecessary farce!

  6. 0

    What I hate is the term PRODUCTS, Banks don’t make products , they think of ideas in investment and ,ending for the betterment of the banks and big investors , and CEO’s there is no balance for the superannuants , those Australians whose super goes into the banking investments just like the wealthy investors m,, BUT, the comeback is nowhere near as even, or as advantage. Add to that the fact that banks are ruthless with their rules and the fact that they are using right from the beginning Other Peoples Money, always makes me think, PRODUCTS, never, they produce nothing, but ways to get the better of any deal, they do with rich or poor, smart or stupid. They have gone so far into the world of underhanded ness, and how to manipulate words and they use the pencil pushing accountants to work out ways of saving money and making money off the people they are meant to be looking after. They are a cash machine , for themselves and only a few actually benefit from their dealings, quite a large generalisation here, but I have my experience to go on , and I have never ever been ahead because of a bank , only myself and the money that I and all of you place into the coffers of banks. Unfortunate but true, and regulation must must must come back to control the size of the barrier between decent business, and Don Corleone?



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