Why We Needed the Royal Commission Shake Up
by Dominique Schuh
The headlines coming out of the current Banking Royal Commission are a tragic and timely reminder that bad advice can have enormous consequences. It is important to us that you have a clear understanding of what it all means, so we will be giving an explanation as to what some of the problems are with the banking and big insurance company's current advice structures in order for you to make informed decisions.
If you go to a bank or insurance company for financial advice, the reality is that the person providing you with financial advice is employed by the institutions that also have a direct financial interest in you taking out one of their products. This problem of "vertical integration" is a relatively new phenomenon. The early 2000s saw an explosion in corporate deal-making as investment banks reaped handsome fees from their less flashy cousins by advising Australian domestic banks to go on a buying spree of wealth management companies.
It was at the time when, Australia's now $1.6 trillion superannuation honey pot was just beginning to flourish, and the banks and AMP thought they'd better get a piece of the action. Fast forward to today and we now have over 85% of the financial planning industry in Australia owned either directly or indirectly by the big four banks and AMP.
Consider this – if you went into a Commonwealth Bank branch and asked to see a financial planner, it's highly unlikely that this financial planner would recommend you put your superannuation with a Westpac super fund, or take out personal insurance with an ANZ policy. Instead, they'll try to sell you the Commonwealth bank super and insurance products and while it may be understandable, it's not necessarily in your best interests.
For this exact reason, the financial planning arm of Schuh Group has always been a non-aligned advice offering, meaning we're in no way tied to the big four banks or AMP. This means we're able to give you completely unbiased advice that's in your best interests, and while we may sometimes recommend a bank owned product, at other times we may not – it just depends on your situation and what's right for you. And this is key.
When it comes to financial advice much like anything else in life, there is no one size fits all solution. The right plan and structure for you and your family will depend on your personal goals, your current circumstances, earning capability and risk level analysis. The role of a financial planner is to support you to clarify your goals and find suitable sustainable solutions to help you realise them. Yes, as a financial adviser there is a return from the products you choose, however, the return we make is only as good as the returns you receive. An independent advisor understands that having clients in a long-term sustainable solution with positive returns is the right path to success. This is not to say that a bank employed financial planner is not aiming for the same outcome, it just means that their portfolio of solutions is limited to the products that their bank or institution offers.
It will be interesting to see what happens to the banking landscape in times ahead, as their advice arms seem to be unravelling of their own accord. This may not necessarily be a bad thing though, provided it doesn't leave customers any worse off during the process and it forces all advisers to provide the best advice possible.
If you'd like a second opinion on any of your bank-owned products, please don't hesitate to ask. We'll compare these to the other products available and give you an unbiased opinion on what's right for you and your situation.
Our vested interest is seeing your wealth grow over time, not to line the pockets of the bankers. Call us today on 5482 2855.