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BFCSA: Banks structure loans to deliver poor financial advice. Australian Banks dominate as a Cartel

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Banks structured to deliver poor advice

Intelligent Investor Date May 26, 2014 - 1:15PM  John Addis

Something odd occurred last week, something that almost never happens in business, let alone financial planning, a sector famously impervious to the needs of its customers.  An industry body - in this case the Financial Planning Association (FPA), representing over 6,000 planners – argued the case for more regulation.  As a recent World Bank study noted, many of Australia's major industries are dominated by a handful of companies. They prefer to be free from pesky regulation so they can carry with their over-charging ways.   This tendency is nowhere more in evidence than in the 'wealth management' arms of the major banks, which have run a relentless battle against the proposed Future of Financial of Advice reforms. 

So why would the FPA, which is arguing for better educated planners, the separation of products from advice and an ASIC register, want more rather than less regulation?  Because it understands that without the public being able to trust those giving them advice, the industry is doomed. The banks, meanwhile, love the idea of tellers flogging us superannuation products whilst we're cashing cheques.  The FPA should be commended for its stance. Unfortunately, the proposed changes will only make the problem a little less dire.  The central issue is not legislation that attempts to mediate selling and advice but that these two roles are combined in the first place. It's a bit like eating tuna custard. Some things aren't meant to go together.  No one asks a drug company for medical advice because we understand that the vested interest is so great that any answer, even an honest one, can't be relied upon.

The recent Fairfax/4 Corners investigation into the behaviour of the Commonwealth Bank in its despicable treatment of sick and elderly clients makes this point.  The bank wanted to sell products; the adviser wanted the highest possible commission; and the customer wanted good advice (but was unable to tell good from bad, which was why they consulted an adviser in the first place). No prizes for guessing who won that little tussle.  The lobbying to repeal FoFA is all about preserving that culture at the expense of advice because it's impossible to do both well.  A visit to the planner at your local branch proves the point. Of the thousands of financial products on the market, from hundreds of different providers, you'll almost certainly be recommended products manufactured by the company that employs (or incentivises) the person doing the advising.  Happy coincidence? I don't think so................


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