Conflict of Interest in Financial Advice – ASIC’s Report

January 31, 2018

The corporate regulator, Australian Securities and Investments Commission (ASIC), has recently released the results of its review on how large financial institutions manage conflicts of interest in providing financial advice. The focus of the review was on the quality of the advice provided when recommending financial products owned and operated by related entities (in-house products). The review was conducted over two periods between 2015 and 2017.

The sales force

The five largest institutions were chosen for the review because they are ‘vertically integrated’ – meaning they provide both advice services as well as manufacturing and selling financial products, such as superannuation and insurance. The report suggests that large institutions use their financial advisers as the sales force for their financial products.

The numbers

The review found that 79 per cent of products on the reviewed institutions’ ‘approved product lists’ (APLs) were external products – APLs contain those products that have been vetted as being suitable for the financial planners to recommended to their clients. However, 68 per cent of clients’ money was invested in in-house products. This raises the question of the purpose of the APLs.

Financial advisers are required by law to comply with the ‘best interest duty’. They must put the clients’ interest ahead of their own. As part of the review, ASIC also examined a sample of files to test whether advice to switch to in-house products satisfied the duty to act in the best interests of the clients. ASIC found that in 75 per cent of the advice files reviewed, the advisers did not demonstrate compliance with the duty. Further, 10 per cent of the advice reviewed left the clients significantly worse off by switching them to in-house products.

The failure

The ASIC’s report revealed that financial advisers aligned to big institutions are biased towards their in-house products, which in many cases leaves their clients worse off.

The study conducted by ASIC noted an inherent conflict of interest arising from big institutions providing financial advice to retail clients, while also selling them financial products. Because of this conflict, clients can’t be sure if an institutionally-aligned financial planner is working for them or their parent company.

The full report can be downloaded from the ASIC’s website:


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