When is advice not advice? When it’s a sales pitch

Stop calling a sales pitch advice, for goodness sake. Photo: istockIt’s funny how those who whinge most about their bank will often make it their first port of call when they need financial advice. What’s an ATM fee or a late payment charge – and let’s not dwell on whose fault that might have been – got on losing your life savings?
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As one of the witnesses said at the Senate inquiry into the Australian Securities and Investments Commission (ASIC), which perhaps luckily for it turned into an inquisition into the CBA’s Commonwealth Financial Planning, there’s more consumer protection buying a fridge than in financial advice from a bank.

And don’t think the so-called Future of Financial Advice (or FOFA) reforms introduced by Labor or the, um, reform of its reforms the Coalition is pushing through, changes things one iota.

Or that the Commonwealth Bank of Australia is the only bank guilty of dodgy advice. The Senate inquiry names Macquarie and in 2009 ASIC fingered ANZ Custodians as well, though all the banks are in the same boat, perhaps not to the same degree of dodginess but of being compromised.

An ASIC survey at the time found one in five advisers were giving “poor” advice.

Yet Labor spectacularly missed the point that banks having advisers push their products can never be ridgy didge because of the inherent conflict of interest, and the Coalition seems set on hiding the fact by tinkering around the edges.

Unfortunately opposing the Government’s reforms is seen as supporting the original so let me say I don’t like either.

FOFA is so bound in red tape that it’s driving independent advisers to the banks, which is not without its irony, with the unsurprising result of increasing the cost of advice.

In one way or another the banks and AMP have more than three-quarters of financial planners under their thumb, something which doesn’t seem to trouble either Labor or the Coalition.

You can have all the regulations in the world, and the voluminous FOFA legislation didn’t miss many, but an adviser employed by a bank is going to be more interested in selling you one of its products than, say, recommending you pay off the mortgage sooner.

And so-called investment platforms or wraps have allowed the banks to infiltrate non-aligned advisers for the privilege of an additional fee, the first of many if a managed fund is involved.

To their credit an increasing number of independent advisers are refusing to use wraps.

But aren’t commissions banned? That’s the biggest con of all. They’ve just gone underground. Instead of commissions being paid to them advisers can charge the fund a service fee instead. Same difference.

And sales bonuses for flogging products, so long as the adviser goes through the motions of considering your best interests, which are also a commission by another name are fine.

Oh, and there’s nothing to say the advice has to be right. It just has to appear to be in – or in the words of the legislation “identify” – your best interests.

This seems to boil down to the adviser writing down what you think are your financial goals and needs which are then regurgitated in your statement of advice.

By the way, since the best interests rule, however it might work in practice, wasn’t around when the Commonwealth Financial Planning scandal erupted it’s going to be tough for the bank or anybody else to be objective about whether advice was appropriate even with the benefit of hindsight.

Harder still when 284 client files appear to have gone walkabout.

There’s nothing wrong with banks selling financial products, especially when they have the expertise to offer good value.

And yes let them pay commissions so long as they’re declared. But stop calling a sales pitch advice, for goodness sake.

@moneypotts

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