Is It Advice Or Is It Sales???
You can be forgiven for missing all the noise currently occupying the insurance and investment world in Australasia. However, as a party to this industry I've an obligation to keep abreast of these developments and changes as they will ultimately impact on you the customer.
In Australia the Government has set up a Royal Inquiry into banking and financial services and while ongoing there are almost daily headlines of lies, deceit and fraud. It appears no institution is beyond suspicion with the list of companies having the spotlight applied being a who's who of the finance world - AMP, Commonwealth Bank (ASB / Sovereign in NZ), Westpac, Suncorp (Vero / Asteron in NZ), National Australia Bank (BNZ in NZ).
Findings have included
- Forging client signatures
- Creating unauthorised investment accounts
- Charging for investment advice that was never provided
- Small business lending breaches
- Retention of unfair contract terms up to 18 months after they were banned
- Providing advice not in the client's best interests
- Unilaterally altering business borrowers loan terms
- Unethical tactics to avoid paying out legitimate claims
- Over charging fees and interest (in the case of ANZ to the tune of $90 million)
These are the findings that will have directly impacted customers. There are also institutional breaches relating to anti-money laundering practices and manipulation of bank swap interest rates.
We can all recall adages like "put it in the bank" or for investment performance "is it better than the bank". So, given we, the public, have been brought up with an understanding that banks are supposed to be a cornerstone of our society providing financial stability and a yard stick for security, how did it come to this?
Well, the inquiry is still ongoing but the consensus is that at the heart of it is the banking industry's promotion of an aggressive, sales driven culture which emphasises profit at all costs.
There has already been fallout with the Chairperson of the Board and senior executives of AMP resigning and suggestion that criminal charges could result out of the inquiry. Regulatory authorities are also becoming more proactive and essentially determining that product manufacturers (banks and insurers) who also have in house distribution platforms - be it Financial Planners, online offerings and branch staff - still have an obligation to do right by the customer both in terms of advice and product provision.
For example, bank Financial Planners are revisiting their fund allocation - not in terms of asset class but of investment manager within the asset class. Anecdotally many bank clients, while being presented with a diversified investment portfolio, were finding that the majority of funds were being managed by either the parent bank or associated companies.
The authorities are determining this not to be best advice but essentially sales disguised as advice.
The same is happening with insurance policies sold through banks. If the bank has only one product range to sell then it more fits a sales process rather than advice followed by what best serves the client.
The outcome of this is we are seeing banks, who all rushed to be comprehensive service providers across the financial services industry, begin to divest of their insurance businesses. This has jumped across the Tasman and we have seen ANZ sell its life business to CIGNA while ASB Bank are concluding a deal with AIG to sell Sovereign (ASB's life company).
So why do I tell you all of this - well, for one thing it's interesting that our Reserve Bank has deemed a Royal Commission into banking in New Zealand is not necessary even though many of the perpetrators in Australia make up the majority of our banking industry here. Apparently, our banks operate with a different culture and there has been insufficient complaints or scandals to warrant such an inquiry.
In my 35 years in the industry I have seen plenty of situations where the actions of an institution poorly served the client. The sales driven performance requirements of bank staff do not necessarily need to meet the same standard of an "independent" advisor.
[Author's note: I use the term "independent" loosely as an industry / regulatory definition has not been agreed to.]
The other connection to New Zealand is we are currently reviewing our Financial Adviser legislation and there is a real battle on between the Big End Of Town (banks and insurers) and the advisory parties (insurance, mortgage brokers and financial planners in the main) as to what constitutes advice versus a sales process. Alongside this is the level of qualifications required to operate at certain levels in the industry.
In summary I would suggest that once the Australian Royal Commission has wound up and New Zealand has passed its new legislation the public will not necessarily be any the wiser as to the quality of advice being presented to them when they sit down with either a bank representative or personal financial advisor.
Finding the right person and the appropriate advice is equally as important as acting on the advice given. The parallels with a dental practice are similar - building trust with a patient comes off the back of good advice as well as competency. Within the dental community we like to think we understand your business better than anyone. NZDIS has been serving members for nearly 100 years and personally I've been a fixture for 19 years.