The problem with getting financial advice from your bank
Next time the friendly bank staff want to help you with your money, consider this: 75% of the advice given to customers wasn't in the client's best interests, according to a review of the financial advice offered by the big four banks and AMP by the regulator, the Australian Securities and Investments Commission (ASIC).
And what is really alarming: 10% of the advice was likely to leave the investor in a "significantly worse financial position".
Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP offer in-house financial advice through their "vertically integrated" business model. They control more than half of Australia's financial planners.
ASIC's review found that while 79% of the financial products on the firms' lists were external and 21% were in-house, advisers favoured those connected to their parent company. Some 68% of clients' funds were invested in in-house products.
While ASIC is "working with the institutions to improve compliance and advice quality," not surprisingly some financial commentators are calling for a separation of financial advice and the products.
Chris Brycki, CEO of robo adviser Stockspot, says the current system, with financial advisers attached to banks, is flawed and the ultimate loser is the consumer.
"Investors should receive fair and unbiased financial advice from experts who will act in the best interest of their client. What many Australians currently get is product pushing from salespeople who are paid by the banks," says Brycki.
He says for consumers to get good financial advice there needs to be complete separation between product manufacturers and the advice providers.
He calls for structural reform to fix the problems caused by the vertical integration of banks and their dominant market power to ensure that consumers are protected, advisers are better educated and incentives are aligned to promote the right types of behaviour.
"Surely this report shows there are grounds to investigate the fees charged on the investment products managed by the banks that fall well short of their published long-term financial objectives."
He says Stockspot's annual research into high-fee-charging funds shows thousands of bank customers are being recommended bank- aligned investment products even if there are more appropriate alternatives available.
RELATED: 10 signs of a dodgy financial planner
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