This shocking figure comes from a recent review of financial advice provided by four major banks by the Australian Securities and Investment Commission (ASIC).
Even more surprising: 10% of the advice found to leave investors in a very bad financial situation.
With a “directly integrated business model”, Commonwealth Bank, National Australia Bank, Westpac, ANZ and AMP provide 'in-house' financial advice, and collectively, regulates more than half of Australian financial planners.
Not surprisingly, the ASIC review found advisors in these banks preferring financial products linked to their parent company, with 68% of client funds invested in 'in-house' products as opposed to foreign products that may have been listed in firms.
Why the integrated banking advice model is wrong
It is hard to believe that banks could keep a straight face and say that they could comply with the advisors' mandate to do things in a way that benefits the customer.
Under the integrated financial advisory model, there are various cost categories including advisor fees, forum fees and investment management fees of 2.5-3.5%
The most common cash divisions are as follows: advisor fee of 0.8% to 1.1%, platform fee of between 0.4% and 0.8%, and trust fund between 0.7% and 2.1%. These costs are not only insignificant, but are high enough to limit a client's ability to quickly earn real reimbursement rates.
The cost charges imposed on the business model used by banks mean that there is no need for the financial advisory unit to make a profit, as profits can be made in the upper segments of the assets through banks advertising their products.
This business model, however, is flawed, and cannot survive in a world where people demand greater accountability for their investments, transparency in terms of payments and increased control over their investments.
It is noteworthy that Australia's most independent financial advisory firms that offer separate accounts have done their utmost to avoid mismanaging funds and to maintain competitive fines.
Banks have refused to acknowledge that their integrated approach to counseling is flawed. When Australian Financial Review consulted with the Financial Services Council (FSC), a high-level body representing 'profitable' wealth managers, to protect them when payment arrangements were made, the spokesman said no changes could be made.
There are significant flaws in the advisory model, and it will be interesting to see what the next commission of the banking master will do to address some controversial issues surrounding integrated financial advice.
Many financial analysts seek to separate the financial advisory links of banks, with obvious bias and failure to meet the best interests of the clients becomes more apparent.
Chris Brycki, CEO of Stockspot, says that "investors should seek fair and impartial financial advice from professionals who will do things in a way that benefits their customer. What Australians are currently experiencing is a product push for bank-paid retailers."
Brycki calls for structural modification to address the problems created by the power of the major banks market to ensure that consumers are safer, better educators and more incentives.
Stockspot's annual survey of the most expensive currencies shows thousands of bank customers' recommendations for bank-targeted investment products, despite the potential of some of the most effective alternatives available.
Paul sharing information regarding financial planning and also give financial advice.
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