Conflicted remuneration rules

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

Opinion: Time to stop shonky planners

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? 





    COMMENTS

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    Gordon
    25th Feb 2015
    10:19am
    The banks might find its actually good for their businesses, to have planners that people can trust. The 'independence' issue causes me to put off going to see any financial planner but if I could trust one of the banks, I would be happy to use them as apart from anything else, the banks are convenient, accessible and have economies of scale that could benefit their planning customers.
    TREBOR
    25th Feb 2015
    11:20am
    Well said, Gordon. Trust with your money has to be first priority for banks. Foolish if they don't adhere to that.

    "Roight nasty beasts, them Goblins, Mr 'Arry - but very good at lookin' after yer money!"
    MICK
    25th Feb 2015
    12:36pm
    People need to avoid the big banks like the plague and invest through other avenues. Given that the current government will always side with their big business election funding supporters don't expect any sympathy if you are skinned.
    SOmetimes the easy way out is the most dangerous.
    wally
    25th Feb 2015
    12:50pm
    From what I have read about how trustworthy the Big Banks' financial planners are, to go to them for advise would make as much sense as hiring a paedophile to babysit your children.
    MICK
    25th Feb 2015
    1:29pm
    I like that analogy wally. Agreed.
    Rob
    25th Feb 2015
    10:40am
    There are no circumstances that I can think of where I would trust a financial planner with my money. The only thing that I use a financial planner for is to provide advice on structure and process. What are the best structural arrangements, what are the legal requirements, how do I best achieve. These sort of questions.

    I research, research and research and then do my own investments.
    LiveItUp
    25th Feb 2015
    10:47am
    I do the same but a recent health scare has me thinking what happens if I can't manage my own investments.
    MICK
    25th Feb 2015
    12:37pm
    Boony: get a Living Will and nominate who is going to look after your financial affairs. It can be anyone of your choice.
    wally
    25th Feb 2015
    12:46pm
    If I could afford to have a mattress, I would put my money in it. I am sure I would find the lumps comforting.
    KSS
    25th Feb 2015
    1:16pm
    Wally; try the sock instead then. Even with holes in the heels you would still keep some money safe.
    wally
    25th Feb 2015
    1:29pm
    What socks?
    MICK
    25th Feb 2015
    1:30pm
    The ones with the holes in them?
    Anonymous
    26th Feb 2015
    10:13am
    After an experience with a financial advisor I look after my own investments.
    The only person who really has your best interests at heart (and not big commissions) is yourself.

    Yes, it is a worry about who to look after your affairs but I will not be putting that in the hands of a family member.
    Retired Knowall
    25th Feb 2015
    10:49am
    I went to 4 Financial Planners to review their practices. During the discussions I told them I would pay them on a performance based method. I would pay them 7.5% on any profit, but they would not be entitled to anything if the portfolio lost money. None would agree so I put myself through the Financial Planners course through Deakin Uni at a cost far less than these so called experts wanted.
    The ONLY person to have your best interests in mind is YOU.
    TREBOR
    25th Feb 2015
    11:21am
    Well done.. well done.
    MICK
    25th Feb 2015
    12:38pm
    Very well done Retired Knowitall. I do the same with some of the financial letters I get flogging 'great investments'. Like you I get no responses and that tells me a lot about the operators of the rags and their interests: themselves.
    buby
    28th Feb 2015
    1:58pm
    yes very well done, now can i ask you where do i put my money where the government can't find it lol !!! besides my mattress!
    Polly Esther
    25th Feb 2015
    12:01pm
    No, I found you can't, so I never did.
    Bye the way, why not have a royal commission into life itself. Would that be great or would it be great?
    Have a nice day and please, try not to worry so much. -- Be happy---
    MICK
    25th Feb 2015
    12:40pm
    I do my own. I cannot lock in as good a return as some institutions get but the fat lady is singing very loudly: shares showing a profit (at last) and dividend return is exceptional on quality stocks. Don't think I would get that with many of the snake oil salesmen this government is protecting from accountability. It is what it is.
    Rob
    25th Feb 2015
    12:58pm
    But Mick when you take out all the fee's charged by planners your returns probably look a lot more competitive.
    MICK
    25th Feb 2015
    1:32pm
    Maybe but at least I cannot get put into very high risk products as happened in the Commonwealth Bank scandal. In case you were not aware customers were put into these even they (in writing) requested 'conservative' products.
    My returns were crap for 5 year but have now taken off like a rocket and are making grossed up dividend returns of around 8% pa. I'm happy with that.
    buby
    28th Feb 2015
    1:59pm
    you can't run and you can't hide mick, the gov will want a cut from that :( i'm sure of it!
    elderplanner
    25th Feb 2015
    12:33pm
    This is the very reason I started the ElderPlan business after experiencing what I considered a inherent confict in the industry about investment advice when managing my parents finances. The ElderPlan business provides information and education but does not recommend or provide access to investment products. This way it remains free of conflict and allows the investor to make decisions with clarity. It also deals with issues raised by Bonnie about "what if" I have an accident and cant manage my own investments. Maybe worth a look???
    MICK
    25th Feb 2015
    12:42pm
    "What if"? Ahhhh....the Time Machine!!!
    Perhaps we need to start a senior share club. These already exist and apparently are doing well.
    KSS
    25th Feb 2015
    1:07pm
    ElderPlan looks exactly like the free government service at: http://www.humanservices.gov.au/customer/services/centrelink/financial-information-service

    which itself looks like the NICRI which is about to close and a hundred other sources of free information of exactly the same type and content but not advice!

    Clearly these information sites have no conflict because they are not in fact offering anything. They simply explain terminology for example or explain what a financial planner does. A valid first step to understanding the sector but useless for making decisions.
    Tigers
    25th Feb 2015
    12:40pm
    I place financial advisors in the same category as 2nd hand car dealers, lawyers, real estate agents and accountants. None have your best interests at heart. I sacked mine years ago, and am so far in front its not funny. Just another Government attempt to create employment. Superannuation was the greatest con of all time and continues to be.
    Rob
    25th Feb 2015
    1:06pm
    Be interested to see your reasons as to why you think is the "greatest con"?
    MICK
    25th Feb 2015
    1:38pm
    Because ot the widespread 'fraud' Rob: Storm, CBA, NAB, Westpac, etc. This is not a case of an isolated incident. It's a case of widespread fraud so that both advisors and the institutions could make big profits.
    The con is that even when caught the CBA ran a 'no knowledge' campaign and then started the 'we are well respected' campaign. It was rather sick given the information coming out Rob.
    Rob
    25th Feb 2015
    3:26pm
    But you can't blame the concept of superannuation because of the fraudulent activities of people. As an investment tool for retirement it is unparalleled in the benefits it provides.
    Sceptic
    25th Feb 2015
    3:30pm
    You are not explaining the reason for the statement "Superannuation was the greatest con," mick, just that there are some fraudulent advisors.
    KSS
    25th Feb 2015
    12:55pm
    No matter how many investigations or how much legislation in introduced, there will always be people out to defraud and gullible people who fall for the 'get-rich-quick' schemes. To brand all financial planners as charlatans and cheats is ridiculous.

    When are people going to take responsibility for their own decisions? Regardless of where the initial advice comes from (a bank employee, a dinner guest, a financial planner or a man in a check suit with two-toned shoes and a trilby) it is up to the individual to check it out and make the decision to go ahead or not. Failure to do that is simply asking for trouble.

    Anyone restricting their research to a single bank/institution is only going to hear about that institution's products regardless whether they are appropriate or the best deal on the market for you or not. No amount of legislation will change that. A bank is NOT going to recommend a product from the bank next door are they?

    An independent financial planner at least usually has access to a wide range of products. They will usually give you a complete plan that you can take away. Ask them how they get paid. Many are on a salary not commissions. They have to tell you where, how and how much they get from each product the recommend. They also have to justify their recommendations. Investigate all the products, have someone else look at it; do what you want and take as long as you want. You then decide whether you want the financial planner to implement it (you pay a fee then), have someone else implement it (probably pay a fee there), ignore it or do it yourself. Ultimately you are responsible for the decisions you make. Unless the financial planner has forged signatures which is a criminal act in itself, all they are doing is giving advice. Take it or leave it - your choice.

    If people are not going to do their own research and make their own decisions, then I have bridge over Sydney Harbour I'd like to sell you.
    Rob
    25th Feb 2015
    1:01pm
    In a horse race always back greed and self-interest
    Rob
    25th Feb 2015
    1:02pm
    Well articulated KSS.
    MICK
    25th Feb 2015
    1:41pm
    Funny KSS but WHY did THIS GOVERNMENT kill sensible accountability legislation left by the last government?
    Whilst investors should act responsibly the point is that there should be a comeback when the business acts against the interests of the client or outright corruptly. That is what does not exist and had the CBA not skinned so many clients then this would never have come out.
    biddi
    25th Feb 2015
    2:48pm
    KSS : Thankyou.
    Do you live in WA?
    (I'm trying to find someone competent and knowledgeable to accompany me to my next meeting with my CBA financial planner!).
    Gordon
    25th Feb 2015
    5:32pm
    KSS, what you say is of course, true, but I read several of the stories of the 'victim's of Storm Financial and they were not sophisticated investors. They probably thought they were being careful by going to a group with Financial Expertise. If the problem was merely that the institution sold them their own products rather than another banks' products it might not have been that bad, but of course, the problem was that it sold them investments completely inappropriate for their risk profiles, and they were not sophisticated enough to understand that.
    KSS
    25th Feb 2015
    6:06pm
    Sorry biddi, not in your state. But good luck, sign nothing, take all documentation with to read carefully later and get a second/third/fourth opinion!

    Gordon, you don't have to be a sophisticated investor - if you were you would probably do things yourself. People spend more time choosing a new car than they do with their investments. It is our responsibility to fully understand anything we agree to. If you don't understand then don't sign or hand over your savings. People have always made bad investments and they always will. I can't see how legislation will help. After all you cannot legislate against greed or stupidity.
    biddi
    25th Feb 2015
    6:44pm
    Thanks, KSS. Much appreciated. Biddi.
    Not Senile Yet!
    25th Feb 2015
    3:05pm
    The Government is avoiding the obvious......make it illegal for Financial Planners to take Commissions or kick-backs from anyone. Raise their Hourly Rate if necessary and make them charge accordingly...just like any other Advisor.....pay them a Fee for their advice!!!
    As for the Banks and Insurance Companies etc....Legislate that they cannot employ or pay any Financial Advisor directly or indirectly!
    Legislate that all Financial Advisors need to be registered and issue them a Licence To Operate....just like the Cabbies etc. etc. Make all the Licence Fees go to a Trust administered by the Financial Advisers to address re-imbursement of clients of Illegal advisors that do the wrong thing.
    Lastly only allow Financial Advisors to be employed by the Big Banks as Independent Consultants.......free both financially and from Bonuses or Commissions.
    They are ADVISORS......so the Public need to be advised/educated that DUE CARE needs to be followed.....2nd opinions compulsory!!!
    Given all the above....CROOKS come in all shapes and sizes.....but they are ALL in human form......Buyer Beware!!!!
    downunder
    25th Feb 2015
    5:01pm
    Rule No 1 : Don't go to yr bank when you are after advice / information about investment or superannuation. They will only sell you their own stuff
    Paulodapotter
    26th Feb 2015
    1:38am
    If you have enough money to require a financial planner, you have the intelligence and ability to mind it yourself. Research is fine, but if you abrogate responsibility for your savings and assets by giving that responsibility to someone else, you are looking to get burnt. Other's greed, naivety and laziness are the financial planners' grist for the mill. Placing your finances in the control of others is simply stupid. Just keeping it away from thieves is difficult enough without looking for one. Middle men should be avoided wherever possible. Australia is full of them and they are the unproductive swill of civilisation. That should get some of you going.
    speakup
    26th Feb 2015
    8:34am
    I HARDLY GAMBLE AT ALL SO WHY WOULD I BE STUPID ENOUGH TO GIVE MY MONEY TO A FINANCIAL PLANNER TO GAMBLE WITH
    Tigers
    27th Feb 2015
    9:58am
    100% correct speakup. They no clue whatsoever. They will always recommend a super/managed fund that pays them the most commission. Do it yourself, way more profitable, and less hassles.
    Gazza
    27th Feb 2015
    5:37pm
    Well, it looks like it is “Bash a Financial Advisor” and “Bash a Big Bank” week.
    Here is my story: I am a self funded retiree with a reasonable knowledge of shares, managed funds, risk profiles and the general problems that can arise when investing money.
    I did not want to be managing my money in my later years – I have better things to do – and I like to sleep at night.
    I selected a FP about 6 years ago, after extensive interviews with 4 potential managers. I finally selected someone who I felt showed interest in my situation, and supplied and explained in detail a summary of my financial position at the time and gave written advice about my future financial growth prospects and security. His company appeared to have a respected name in the financial world. I understood his fee structure clearly.
    He does happen to work for a company that is owned by the CBA – big deal !!
    To cut to the present – I am more than happy with the results from my FP. My returns have been what I expected without being spectacular. I am drawing a monthly pension and my portfolio balance is still rising. I also have online access to my portfolio so I can quickly see ( if needed ) how each particular fund is performing. Occasionally, my FP has suggested a move of some funds, but only after I understand and agree with his assessment.
    I have regular meetings where any unusual or worrying trends are discussed and I can update him on any personal plans that may have arisen since our last meeting that didn't warrant an email.
    I am very satisfied.
    Angelia
    2nd Mar 2015
    6:50pm
    I agree wholeheartedly Paul Herring. Let conflicts of interest continue to rule financial advisers' remuneration package!dissertation help uk


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