Institutionally aligned financial advice loses its gloss

December 1, 2015

In recent times some of Australia’s largest financial institutions, and their aligned dealer groups, have made disturbing headlines in wealth management. The Commonwealth Bank was recently reported as having to refund about $80 million to 216,000 customers for failing to provide them many of the benefits of its wealth package. In other reports, ANZ paid back $30 million compensation to 8,500 clients who paid for financial advice that they didn’t receive. Such reports do not augur well for an industry that is required to act in customers’ best interests. The issue that large financial institutions and their dealer groups face is that in adhering to a strict list of approved investment products they may not be acting in their clients’ best interests. Further, the structure of executive remuneration and pressure to meet stipulated KPI’s exacerbates and accentuates the conflicts of interest that advisors in large aligned dealer groups often face.

As a result we are starting to see an exodus of advisors from these large, institutionally aligned dealer groups, to organisations where they are able to give financial advice with greater independence. A number of high ranking individuals in the industry have already made the change with ex-ANZ advice director Paul Barrett launching a new advisory firm, and some veterans from Macquarie and UBS signing up with Shaw and Partners. Former MLC chief executive Steve Tucker and former JBWere chief executive Paul Heath also launched their own firm in late 2014. Tucker was reported as saying the industry needed “an independent, high quality firm, staffed by experienced professionals that serve clients in a manner completely free of conflicts of interest which exist in many firms”.

Morgan Wealth LogoThis shift away from aligned groups is a reversal of the trend a few years ago. When times were more uncertain, the financial surety that came from alignment with a large institution provided a sense of security to many financial advisors.  Aligned groups also feel safe to many customers, who believe that they are more likely to be compensated should things take a turn for the worse. However, the increasing availability of software solutions for administration and advising, means that the technological infrastructure of large institutions is no longer an incentive to align with them. A recovering market makes the surety that comes with alignment less appealing, and the restrictive lists of approved products that many dealer groups enforce often lead to missed investment opportunities.

One last problem with the large dealer groups is a focus on alpha rather than financial advice. Good financial advice can make a far larger impact on retirement income than investment management. A combination of the two makes for the best possible outcome, but many of the large firms tend to neglect the importance of laying the stable foundations of solid financial advice.

At the end of the day, the safest way to ensure you are getting advice that is the best for you, is to have your wealth managed by a firm that is independent. The attention that independent firms can give a customer, without having to adhere to restrictive policies and product lists, means that the advice that you receive is tailored for each individual scenario, rather than cookie cutter investment advice.

Morgan Wealth Management Group has been independently owned from the outset. We do not receive commissions on investments and are not restricted to any financial institution’s product list.  If you are seeking unconflicted financial advice, feel free to contact us for a free interview on 1300 612 882 or email us at info@morganwealth.com.au

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