Last week ASIC released a report highlighting that financial institutions need to better manage conflicts of interest after a review of certain institutionally-owned licensees found high levels of in-house product bias despite broad APLs.
In response, the FSC issued a statement that made the argument for the upsides of the vertically integrated model in operation at most institutional wealth management businesses.
“Vertical integration can provide economies of scale and other benefits for customers,” the statement said.
“Consumers are attracted to the convenience and safety of a relationship with a large, vertically integrated institution which facilitates easier access to financial services and stands behind their advisers as an extra layer of protection if things go wrong.”
The statement also questioned the methodology used by ASIC in conducting the investigation that led to the report, suggesting it did not include consultation with relevant clients or advisers.
“In the report, ASIC has adopted its own interpretation of how the best interest duty should be applied. In drawing conclusions regarding ‘non-compliant advice’, ASIC has considered file documentation alone; it has not consulted with individual clients or advisers,” the statement said.
“It is the FSC’s view that, before drawing definitive conclusions about the appropriateness of advice, the client and the adviser should be consulted.”
The organisation did, however, acknowledge that “there is still work to be done to address community and regulator concerns” over advice quality in Australia, and that the FSC and licensees would work together with advisers and clients to “make things right”.
“There is already further work underway to improve advice. This includes better monitoring and supervision; improvements in the advice process; and ASIC banning advisers with serious compliance failings,” the statement said.
“ASIC has acknowledged in this review that these reforms have resulted in an improvement in the quality of advice and expects that it will take some time for all reforms to have their full intended effect on the financial advice industry.”
