The Australian Securities and Investments Commission (‘ASIC’) is the Government body in charge of regulating financial planning in Australia. ASIC has been in the news lately, talking about its recent investigation into the financial advice services provided by Australia’s big banks, including the AMP.
The report makes for gloomy reading: more than 200,000 customers were charged fees for services they simply did not receive. By banks. Banks are not your friend. You might need a bank to give you a loan, but they are not your friend.
Australian financial planners operate under the authority of what is called an Australian Financial Services Licence (‘AFSL’). These licences are issued by ASIC. Holders of an AFSL are known as ‘licencees.’ Each of the ‘Big 4’ banks (NAB, Westpac, Commonwealth and the ANZ) holds an AFSL, as do all of the second tier banks such as Bendigo Bank and the Bank of Queensland. AMP holds one as well. Some of the banks own more than one AFSL, as they have various subsidiaries that they have acquired over the years.
That means that the banks employ a lot of financial ‘advisers.’ It is estimated that as many as 85% of all financial planners in Australia operate under the authority of one of the big banks’ (including AMP) AFSL.
These financial planners are known as ‘aligned’ or ‘integrated’ planners. This is because the AFSL under which they operate shares common ownership with an institution that also provides financial products such as life insurance or managed funds. The bank owns the AFSL and it owns the products potentially being recommended by advisers within that AFSL. You can see the obvious problem here: seeing an adviser who works for a bank is a lot like asking the checkout operator at Woolworths where you should buy your groceries, or a car salesman in a Ford caryard which car they think you should buy.
As financial advisers ourselves, we need to operate under the authority of an AFSL. When we went looking for an AFSL under which to operate, we looked specifically for an AFSL that was not a bank and which did not make any financial products. We did this because we want to be genuine advisers. We want to make sure that our licencee does not pressure us to sell a specific product, or a specific amount of product, to clients who trust us. We were looking for an AFSL that allows us to operate a practice where we are free to recommend anything that we truly think is in our client’s best interests – no matter which institution is offering it. We wanted to avoid working for an institution that charges people for work it never performed.
This means we can be real advisers. We can look our clients in the eye and tell them honestly that the advice we have given them is what we would do if we were in their shoes. ‘What I would do if I were you’ is the only way to be a proper adviser.
I have to admit, though, sometimes I can be a bit jealous of the 85%. Sometimes I think it would be great to see my AFSL’s name being touted around – splashed across the backs of Australia’s one day cricketers, or sponsoring an elephant enclosure at the zoo. And it would be nice to get some free tickets to things like the Australian Open.
But then I remember – it is the bank’s clients who pay for those ads. And the last thing I want to do is work for a bank. Especially because banks are not covering themselves in much glory these days. 200,000 people paid for a service they did not receive. If I was authorised under a bank’s AFSL, my clients might be among them.
That would be way too high a price to pay for a restricted practice and some tickets to the tennis. That’s why we chose not to work for a bank. It is the only option for a genuine financial adviser.