Freedom of choice or not
I appreciate the big four banks and have fond feelings for AMP. They provide life insurance, investment and superannuation products together with other firms in Australia and some of their products are among the best you can buy. I also like industry superannuation funds and use independent fund managers such as Dimensional and Vanguard. In fact, there are lots of great financial products available in Australia that I can recommend. However, no single organisation has all the best products on the market. That is in the nature of things in a highly competitive market like Australia.
Since there are lots of great products out there, financial advisers should have a great reputation as they can pick and choose the best for their customers. However, the reality is regrettably a little different. Several times a year the papers are full of the misdeeds of financial advisers, there is an outcry and suddenly there is a new set of restrictive laws that are put on financial advisers with the public saying ‘serves them right’. Fast forward a few years and, despite the new restrictive laws being in place, the newspapers are uncovering lots of misdeeds of financial advisers, there is an uproar … you get the picture.
It seems impossible to stomp out misconduct by financial advisers and there is a lot of collateral damage with all these new and restrictive laws – damage that isn’t quite written up in big letters in newspapers but that is hurting a lot of people who can’t get financial advice as the laws have made advice more and more difficult to give. But I digress – the main issue seems to be that financial advisers look as if they are unable to truly reform even though I know lots of decent people who are financial advisers. The reason is that true reform is very simple but very hard to put in place. To quote a former US president, Ronald Reagan who is controversial but in this case seems on the money:
“I say there are simple answers to many of our problems – simple but hard…It’s the complicated answer that’s easy because it avoids the hard moral issues”
(Economist June 12, 2004, 24).
Online comments Comment from Christoph: Conflict of Interest Thank you for publishing my Tuesday’s Wealth Column on why financial advisers are struggling to be trusted. However, seemingly for space reasons, the punch line was deleted!
The final para that did not appear contained the simple but hard change that is needed for advisers to be trusted again and that was to deal with the conflict of interest that is rife in the industry. Currently the majority of financial advisers are working for the big four banks or AMP or one of their many subsidiaries which means they are working for a product provider and therefore have a conflict of interest. It is a bit like going to a Ford dealer and asking “which is the best car for me?” – even if in your case a particular Toyota is clearly the best choice, will the Ford dealer tell you? It is the same with financial “advice”.