A new report from ASIC has revealed large vertically-integrated advice businesses are directing over two-thirds of their clients' funds into in-house products. The report, entitled Financial advice: Vertically integrated institutions and conflicts of interest, found this applied to life insurance, superannuation, and pension products.
The report follows a two-stage review conducted by ASIC that covered advice provided in 2015 and 2017 by advice licensees owned by AMP, ANZ, CBA, NAB, and Westpac. Those licensees are:
- AMP Financial Planning
- Charter Financial Planning
- Millennium 3 Financial Planning
- ANZ Financial Planning
- Count Financial
- Commonwealth Financial Planning
- GWM Adviser Services
- NAB Financial Planning
- Securitor Financial Group
- Westpac Financial Planning
ASIC found that 79 per cent of the collective products on licensee approved products lists (APLs) were external products and 21 per cent were in-house products, but 68 per cent of client funds were placed into in-house products.
ASIC stated all aspects of advice were covered by placement of funds including life insurance, platforms, pensions, investments, and superannuation, and varied across financial products and licensees, but there was a clear lean towards in-house products.
ASIC found a decline in the in-house bias when new business was being written, with only 31 per cent of new customer funds being directed towards in-house products.
The regulator stated they do not expect the proportion of in-house products on the APL to be the same as customer funds invested in in-house products, however, the high level of non-compliant advice combined with the high proportion of funds invested in in-house products suggests the reviewed licensees may not be appropriately managing the conflict of interest associated with vertically-integrated business models.
The regulator added that it has not released specific details about the reviewed licensees to maintain confidentiality in its data gathering.