An authorised representative of AMP Financial Planning has written to his local MP, raising the alarm about “systemic bias” towards in-house product at institutional licensees.
Rhys Wood, director of Queensland-based AMP-licensed firm Elite Wealth Solutions, has forwarded a passionate submission to the Financial System Inquiry, via his local MP, assistant federal defence minister Stuart Robert, pointing to product biases existing within vertically integrated financial institutions.
“The most pressing issue within the advice industry is the existence of bias within the advice process,” the submission states. “Much of this bias results from the onerous costs and burdens of complying with the various legislation, regulations and interpretations as enforced by [ASIC].”
Due to the “cumbersome and expensive process necessary” to become a self-licensed financial adviser, most are forced into operating under institutionally-owned AFSLs, Mr Wood wrote.
He suggested that while “these institutions purport to conduct research into the various financial products and services available” and “claim to give consideration to the available products across the entire market”, in fact there are inherent biases in place to recommend the products of an associated product provider.
“Given that many of these AFSL holders are owned and operated by institutions that supply the financial products recommended to retail advice clients, AFSL holders develop APLs which virtually exclude all other products from providers who compete with their parent company,” Mr Wood wrote.
“As a result of the systemic bias within the AFSL holder organisations, clients are not recommended to use alternative financial products provided by a competitor of the AFSL holder’s parent company regardless of any superior ability to meet the client’s needs.”
This bias has a negative impact on clients and consumers by denying aligned financial advisers the opportunity to “freely consider, and recommend, all available products on the market”, forcing clients into products that may not be appropriate.
In order to reduce product bias inherent in the system, Mr Wood recommends reducing the “red tape” associated with obtaining an AFSL, so as to support the proliferation of a greater number of financial planning licensees.
The practice principal also recommends raising minimum education standards, introducing a “tiered system” for financial advice, and allowing advice fees to be deducted from super on instruction of clients.
Written by Aleks Vickovich for ifa online.