ASIC has published a report REP 562 Financial advice: Vertically integrated institutions and conflicts of interest on its project to examine how Australia’s largest banking and financial services institutions manage the conflict of interest that arises as a result of institutions engaging in both the provision of personal advice to retail clients and the manufacture of financial products under a vertically integrated business model.
This project focused on five of the largest banking and financial services institutions in Australia: the four major banks and AMP Limited.
ASIC found that the combined total of all products across the approved product lists of the two largest advice licensees of each institution included a higher proportion of external products (79%), compared with in-house products (21%). However, the value of funds invested by customers in these external products, as a result of the advice provided, was 32% of the total value of funds invested, compared with 68% invested in in-house products.
ASIC found that clients were invested heavily in in-house products after receiving advice, and the quality of advice was often non-compliant
It concluded that a substantial bias towards in-house products may signal that it would be difficult for the licensee and its advisers to manage the conflict of interest.
The project covered the periods from 1 July 2014 to 28 February 2015 and from 1 January 2017 to 31 March 2017.
ASIC recommended that advice licensees in all vertically integrated businesses should regularly analyse which products from their approved product lists are being recommended by their advisers.