Advisers quit big banks, AMP as watchdog intensifies scrutiny

The Australian 12:00am July 10, 2017

Michael Roddan

Financial advisers are deserting the major lenders, voting with their feet as the corporate watchdog heightens its scrutiny of the controversial cross-selling of wealth products in the “vertically integrated” lenders.

The big four banks and AMP, which control nearly half of all financial advisers in Australia, have bled more than 400 advisers in the last six months, according to Bell Potter analyst Lafitani Sotiriou.

Mr Sotiriou believes the rush for the exit has been caused by major banks limiting the freedom of their advisers to recommend products offered by rivals.

National Australia Bank on Friday was slapped on the wrist by the Australian Securities & Investments Commission after it was revealed it failed to tell “at least” 150,000 customers its advisers were cross-selling the bank’s own products, including those sold by its subsidiary MLC.

Instead of disclosing the ultimate owner of the products in the legally required statement of advice, NAB made the admission in a separate and lengthier financial services guide, meaning customers may have been unaware they were being cross-sold financial products.

According to Simon Swanson, chief executive of independent advice group ClearView Wealth, consumers are being kept in the dark when they see financial advisers because of major banks’ use of restrictive approved products lists, which dictate which products financial advisers can recommend to customers.

“There’s no disclosure for customers about how many products are on a company’s approved products list,” Mr Swanson told The Australian.

“You’re asking financial advisers to be professionals and at the same time restricting them enormously in what they can offer. It’s like a pharmaceutical company-owned medical practice telling all the doctors they can only prescribe the drugs owned by that pharmaceutical company.”

Mr Sotiriou said advisers were fleeing major banks because they were “more constrained in their decision-making”.

In the past six months, Commonwealth Bank, Westpac, ANZ, NAB and AMP have lost nearly 2 per cent of their market share in the country’s advisers.

“This trend to independence is a key theme in the sector and we believe it is set to continue,” Mr Sotiriou said.

Wealth manager IOOF has increased its share over this period. Chief executive Chris Kelaher puts it down to the company’s “open architecture” model, which allows advisers to sell any company’s products. There is also more consolidation between small and mid-tier independent advisories, which are competing against the major banks and AMP.

ClearView Wealth manufactures its own life insurance products, but its advisers are able to recommend any competitor’s products. “We will only deal with the inherent conflicts in vertical integration when every adviser has full range of choice,” Mr Swanson said.

Banks grant advisers different degrees of freedom depending on the product and the parent company. As revealed by The Australian, Westpac’s BT Financial Advice has access to just one insurer on their approved product list. NAB Financial Planning has two insurers on its APL. ANZ has a master list of nine insurers on its APLs for its group Financial Services Partners and M3, which includes its own OnePath insurance.

APLs for AMP’s licensees Hillross and Charter have eight of the 10 largest insurers to offer. CBA and its Colonial First State dealer groups give its advisers a minimum of three insurers to offer customers.

In many cases, rival companies must pay exorbitant “support fees” to be admitted to an APL. The money is spent educating advisers about products and on conferences. Based on information provided by Zurich Financial Services Australia to a Senate inquiry into the life insurance sector, the company pays up to $800,000 a year to access these lists.

“It has to be disclosed exactly who owns what,” Mr Swanson said. “And it has to be disclosed if the adviser is allowed to sell all products available in the market. There has to be transparency because transparency will deal with all the inherent conflicts.”

ASIC’s wealth management project, established in late 2014 following a string of high-profile scandals in the financial advice sector, has led to millions of dollars in compensations and the sacking of dozens of advisers.

Many of the issues, such as poor financial advice, conflicted remuneration and fees being charged for no service, have fed into calls for a royal commission into the banking sector.