Conflicted payments prevent planners from offering the most appropriate advice.
The recent disclosure of inappropriate, perhaps illegal, financial planning activities by NAB financial planners has led to renewed calls for a royal commission into the whole financial planning industry. So far the government is resisting pressure from crossbench senators, in particular, to act and whether we have a royal commission or not remains to be seen. But in the meantime, how do ordinary Australians gain or regain trust in what appears to be a corrupt system?
As ABC Finance Quarter’s writer, Andrew Robertson, states, there is a hidden cost to conflicted payments. He reveals that the ‘elephant in the room’, which clearly no-one wants to address, is conflicted payments, coupled with the sales culture of big banks keen to sell products, such as insurance, managed funds and annuities. It is these retirement income products, rather than traditional mortgages, credit cards and car loans of yesteryear, that now earn the banks big bucks. And, as Robertson tellingly shares, conflicted payments limit the advice that financial planners are able to offer
“If you're being paid by commission on life insurance or taking a percentage of the money clients have invested with you, by necessity you have to put your clients into products that pay those commissions. Which means other options, such as getting rid of the mortgage, which may be more advantageous to the client, don't get considered.”
Robertson describes this as having planners with ‘one hand tied behind their backs’.
Read more at ABC.net.au
Saving money for retirement is a tough gig. Those who struggle to make ends meet often find the required saving regime is beyond them. Most older Australians have not had compulsory super long enough to build a sufficient retirement nest egg. And as the rules around pensions and superannuation are complex, those who are planning for, or entering, retirement are usually told to see a financial professional. But the ‘Big Four’ banks and AMP employ about 80 per cent of the financial planners in Australia. And three of these four banks have been found to have treated their customers with disregard, contempt and to have been guilty of some illegal actions. So how do ordinary Australians select a planner they can trust?
Not easily, is the answer. The industry association for financial planners, the Financial Planning Association of Australia (FPA), has about 10,000 members who have earned a designated ‘Certified Planner’ qualification. Some FPA members work for the big banks, some do not. You can search, by postcode or suburb, the FPA’s consumer website to locate a planner nearby. But what then? Do you just make an appointment and hope for the best? I did a search using the name of my local suburb and got seven pages of results, listing 200 possible planners, many of whom work for the ‘Big Four’ banks or AMP.
Seriously – how do you choose? Most of these planners are probably honest and professional. But the evidence is in front of us that some of those who have worked for the CBA, NAB, AMP, Macquarie and ANZ have been found to have acted inappropriately with their clients' life savings. The banks are currently choosing to investigate this white-collar crime themselves. And as Andrew Robertson points out, even those planners who act ‘appropriately’ are prevented from sharing the best strategies – i.e. don’t buy a bank product – pay down your mortgage instead.
It’s important to remember that in Australia our superannuation is a pot of gold currently worth $1.9 trillion. So, given that these planners work for organisations with a stranglehold on 80 per cent of our superannuation/retirement savings, wouldn’t you think it was a no-brainer to have a royal commission into the rules around financial planning – and what is necessary to put customers’ interests fairly and squarely on top of the priority list? Apparently not.
What about you? Do you think our financial planning system needs an urgent review? Should we have a royal commission into the conduct of planners and their employers? Or is this an overreaction?
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