Learn To Invest
Stocks Special Reports LICs Credit Funds ETFs Tools SMSFs
Video Archive Article Archive
News Stocks Special Reports Funds ETFs Features SMSFs Learn
About

News

Take my advice: AMP, industry complexity spark calls for a reboot

Nicki Bourlioufas  |  31 Aug 2020Text size  Decrease  Increase  |  
Email to Friend

The ructions at AMP Ltd (ASX:AMP) and the increasing volatility and complexity of the retirement system show that more regulation is needed to ensure financial advice is free of conflicts of interest, wealth managers argue.

Independent wealth manager Andrew Lord, a director at wealth management firm Sherbrook Private, predicts “conflicts will keep appearing,” noting problems at IOOF (ASX:IFL), AMP, and industry superannuation funds.

Lord argues the time is ripe for even greater government regulation to ensure financial advice is free from conflicts. Independent advisers that receive no inducements or incentives should be the norm and not the exception.

“I feel that the time has arrived for discussion on  a national superannuation platform (similar to the national electricity grid) overseen by the government where asset managers  can have their products invested in, and the government  monitor holdings (funds and shares) and cash movements,” says Lord.

“If such a system existed, holders of Australian Financial Services Licences (AFSL) wouldn’t be able to take a fee from the platform or be paid by fund managers – they could only receive payment from clients.”

Lord’s comments follow a tumultuous month at AMP, marked by the resignation of chairman David Murray last week and the demotion of funds management boss Boe­­­ Pahari over a sex scandal.

Lord says it’s time for the superannuation system to undergo a “reboot”.

“In times of high returns, investors can stomach conflicts of interest, which have existed since the start of the Australian super system, but now in the new world, the super system and those that stand to benefit needs a total reboot … a Super 2.0 backbone is well overdue.”

Drew Meredith, director and adviser at Wattle Partners, agrees. He concedes conflicts of interest are endemic among most of the larger players in the Australian financial advice industry, by virtue of the fact they run in-house products and employ advisers to advise on them.

However, Meredith says this is not the case for the bulk of independent advisers. Additionally, he says any merger between IOOF and MLC is unlikely to change this landscape of conflicts.

“This isn’t limited to the MLCs and AMPs, but also to industry or union [superannuation] funds, with many only able to provide intra-fund advice on their own products,” Meredith says.

Power of advice

Evidence suggests receiving financial advice can have a big positive impact on a person’s financial and overall wellbeing.

A recent survey by fund manager Fidelity International found that almost three quarters (74.3 per cent) of Australians currently receiving advice say their financial wellbeing had improved as a result.

Moreover, 88.5 per cent of Australians receiving advice say it has given them greater peace of mind financially.

Wattle's Meredith says every Australian would benefit from at least one statement of advice or financial plan, in one way or another, as it would help to avoid major mistakes in investing, superannuation and other financial matters.

“For most people, thousands of dollars can be saved in fees, tax and underperforming investments from a one-off statement of advice,” says Meredith.

"For others, avoiding a single mistake (like excess contributions, hot stock tips, or selling at the bottom) or finding one positive investment each year pays for an entire years’ worth of advice.”

At a time when the volatility and complexity of the financial environment has been increasing, professional financial advice can help to ensure Australians fully understand their financial situation and make the most of it, says Jonathan Philpot, wealth partner at HLB Mann Judd Sydney.

“An adviser can help by holding your hand through times of great uncertainty,” Philpot says.

“With the extreme volatility this year, panicking and selling out of shares in the March low would have cost hundreds of thousands of dollars for a retiree with $1 million of retirement funds. We know this did occur with many industry super fund members who were most likely not advised,”

Consumer research released last year by ASIC reveals the barriers faced by consumers when considering financial advice. 

An ASIC report, Financial advice: What consumers really think, found that while Australians believe financial advisers can offer significant expertise on financial matters, many are reluctant to seek advice because they feel it is too expensive or because they lack faith in the industry.

While more than 40 per cent of Australians intend to get personal financial advice in the future, many hesitate because of these perceived barriers, according to the research, which was conducted between March and May 2018.

The research found that 27 per cent of Australians had received financial advice in the past, and 12 per cent of Australians received advice in the preceding 12 months.

Crucially, the research found that the bulk of consumers sought financial advice because they felt advisers had expertise in financial matters and could recommend products that they, as consumers, failed to find on their own. 

That view is echoed by Philpot. “Advisers have experience and knowledge that most people can’t fully possess themselves.

“Just as people seek other professional advice from trusted professionals, financial advisers will also soon be the same trusted advisers,” he says.

Proof is in the pudding

A recent global survey by the Chartered Financial Analyst Institute found that consumers who had received advice had more positive attitudes towards financial advisers than those who had not.  

While just one in four Australian retail investors (24 per cent) were found to trust the financial services industry, down from 31 per cent in 2018, the survey found that 81 per cent of those investors using an adviser say they have a fair opportunity to profit by investing in capital markets. That compares to 57 per cent for those without an adviser. 

In Australia, the Financial Adviser Standards and Ethics Authority (FASEA), is helping to lift the standard of financial advice.

The setting of minimum standards for education, training and ethical behaviour of all financial advisers is expected to contribute to the lifting of standards and consumer trust in advisers.

Visit Morningstar's Reporting Season 2020 coverage. The calendar will be updated daily to connect you with our equity analysts' take on the financial results.

is a Morningstar contributor.

This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria. 

© 2020 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782. The article is current as at date of publication.

Email To Friend