5 Financial is owned by Matthew Farrell and Jason Petersen, both of whom are passionate exponents of delivering real financial advice to you and your families. We have been quietly delivering real financial advice to hundreds of Australians for many years.
However, 5 Financial is just one very small part of a very large financial services industry. It is an industry that has many strengths, but also has some in-built flaws which make selecting the right financial adviser a bewildering exercise for the uninitiated.
I think we all expect that when seeing a professional – whether it is for legal, medical or financial advice – that the professional will, at all times, act in our best interest and not be some bit player who is part of some larger opaque, murky scheme to line the pockets of the scheme’s promoters at our expense.
At 5 Financial we have no problem with people seeking advice from the banks and other financial institutions, but we are horrified by two aspects of the involvement of financial institutions in financial advice. Firstly, we find it bewildering that a financial institution which owns financial services firms portray themselves to the public as ‘independent’, when in fact they are definitely not. And secondly, that these financial institutions hide most of their fees inside the products they sell people and it is done under the guise of providing “financial advice”.
One of the major causes of these in-built flaws of the financial services industry is that in excess of 90% of registered financial advisers in Australia work as part of a firm that is wholly or partly owned by a financial institution such as a bank, insurance company or large superannuation fund.
These problems were highlighted recently in a submission to yet another inquiry into the financial services industry. It was reported in the press* in April this year that a Mr R Wood (Director of Queensland-based AMP-licensed firm, Elite Wealth Solutions) has forwarded a passionate submission to the Financial System Inquiry raising the alarm on “systemic bias” towards in-house financial product at institutional licensees. He suggested that while “these institutions purport to conduct research into the various financial products and services available” and “claim to give consideration to the available products across the entire market”, in fact there are inherent biases in place to recommend the products of an associated product provider.
“Given that many of these Australian Financial Services Licensee (AFSL) holders are owned and operated by institutions that supply the financial products recommended to retail advice clients, AFSL holders develop Approved Product Lists which virtually exclude all other products from providers who compete with their parent company,” Mr Wood wrote.
“As a result of the systemic bias within the AFSL holder organisations, clients are not recommended to use alternative financial products provided by a competitor of the AFSL holder’s parent company regardless of any superior ability to meet the client’s needs.”
This bias has a negative impact on clients and consumers by denying aligned financial advisers the opportunity to “freely consider, and recommend, all available products on the market”, forcing clients into products that may not be appropriate.
Congratulations to Mr Wood for taking a position and reporting his experiences to the Senate Enquiry. We hope this is one small step, or even may be a catalyst to improving the chances of Australians receiving financial advice that’s in their best interest.
* “AMP planner blows whistle on product bias” IFA Monday, 07 April 2014