When sales spiels masquerade as advice

When sales masquerades as advice

Australia's financial services regulator is ASIC. (The New Zealand equivalent is the Financial Markets Authority (FMA).) ASIC recently released a report on how large financial institutions manage conflicts of interest with respect to financial advice.

In other words, ASIC was looking at financial advice provided to clients where the financial adviser was affiliated with the product issuer. 

I know for a fact that there are many good advisers who operate in this type of environment. However, there are strong incentives for financial advisers in this situation to prioritise acting as salespeople rather than advisers. (While still charging a handsome fee for the privilege of providing this "advice".)

Consider the following excerpt from ASIC's media release:  

in 75% of the advice files reviewed the advisers did not demonstrate compliance with the duty to act in the best interests of their clients. Further, 10% of the advice reviewed was likely to leave the customer in a significantly worse financial position. ASIC will ensure that appropriate customer remediation takes place.

Let me reiterate. Where an adviser recommended an "in-house" product to a client:

  • In 75% of the advice sampled, the advice was not clearly in the best interests of the client.
  • In 10% of cases, the advice was likely to put the client in a significantly worse financial position.

Through Fairhaven Wealth I follow the "family and friends rule". Which is to say, I provide my clients with the same advice I would give my family and friends if they were in the same position.

To my family and friends I'd say this. If your financial adviser is affiliated with a financial product provider, how can you know whether you're getting advice or a sales spiel?

To my family and friends I'd say this. Use an independent financial adviser. 

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Sonnie Bailey

Sonnie is the founder and principal of Fairhaven Wealth.

Before founding Fairhaven Wealth, Sonnie worked in the legal and financial services industries for over a decade.

Sonnie first became involved with financial advice as a specialist financial services lawyer. For many years, he was an “adviser of advisers”, reviewing thousands of advice files prepared by hundreds of financial advisers, and providing feedback in relation to the quality and appropriateness of advice; industry best practice; risk management; and regulatory compliance. He has published work in industry publications and spoken at various financial advice conferences.

Sonnie has also worked with banks, investment management firms, insurers, and derivatives providers.

Sonnie has worked as a private client lawyer, focusing on succession, estate planning and trusts. He ran his own legal firm in Australia before relocating to New Zealand. He has also acted in independent trustee and company director positions.

Sonnie is passionate about helping people achieve their goals and manage the risks to which they are exposed.

He has written extensively on his blog, New Zealand Wealth and Risk, which can be found at www.wealthandrisk.nz.

Sonnie is married to his wonderful wife Chrissy, and has two young children, Ben and Anna.