Financial advisers in the spotlight

Wealth management firms have never been under such rigorous scrutiny.

It’s a hive of activity at the corporate regulator as its boffins quietly undertake more detailed quizzing of firms in wealth management on fees and governance.

The word is that several companies in the industry are fielding new requests for information or engagement by the Australian Securities and Investments Commission, with several being asked to complete detailed questionnaires to shed light on compliance processes and structures.

That follows the interim and final reports from Commissioner Kenneth Hayne into misconduct in financial services, which firmly had regulators, wealth managers and financial advice firms in its sights.

Referrals by the Hayne commission are being actively considered by ASIC and the prudential regulator for further action, as both seek to get on the front foot and regain respect from the public by moving away from a cushy or consultative approach.

The regulator is certainly now more visible in the market. Sources said a firm — believed to be Perpetual — received a private reminder in recent months of its best interests duty by ASIC. No action was taken bar the reminder.

Either way, the industry is anxious to say the least.

“The regulatory upheaval is still fairly early in its cycle,” one senior executive says of regulation and further action expected in the wealth industry.

ASIC’s enlarged tentacles will touch wealth managers, stockbrokers and financial planners as it ramps up enforcement and other actions this year.

That backdrop comes as disruption and dislocation are also swirling through the industry, as big banks retreat and question whether the financial logic makes sense in areas such as wealth management and planning.

The banks are scurrying behind the scenes to work out the best way forward to either exit wealth management or maintain a smaller presence in the sector.

Westpac — while committed to swathes of the wealth sector — was this week the latest bank to get out of financial planning, following ANZ which sold its advisers and dealer groups to IOOF.

Commonwealth Bank and National Australia Bank are weighing exits from planning, while both have exited life insurance.

NAB-owned JBWere is also continuing to refine its model and sources said it had recently decided to all but shut down its general advice call centre. The advisers on the advice desk are being given further training so they can provide broader advice.

Over at AMP, its 2018 sustainability report gave a few insights into several matters it is dealing with, along with fixing its culture and remediating customers.

Released this week, the report said there were 20 whistleblowing issues raised last year, with the lion’s share of those made through the newish Your Call independent and confidential service set up in 2017.

Of those, 12 matters were investigated and not substantiated, four were investigated and resulted in “appropriate consequences” while four cases remain under investigation, according to AMP.

The report also said AMP would not hesitate to terminate advisers that committed fraud, misconduct, or intentionally breached their best interest duty to customers.

Given the ongoing remediation and the upcoming federal election in May, the industry and the regulators have a frenetic nine months to go in 2019.

File reviewers in financial planning are said to be a hot commodity and several banks as other companies hire hoards of accountants and lawyers to help trawl through and review files.

Don’t say ‘independent’

Coming back to Westpac, its transaction with Viridian Advisory to take 175 employees has raised several questions.

While Viridian has pitched itself as providing “impartial advice”, its release on Tuesday didn’t mention that it also has a division that runs its own Separately Managed Accounts, which is a portfolio of assets managed by the firm. The unit is called Infinity Asset Management.

While of course Viridian would have to prove any recommendation of their SMA strategy is in the best interests of clients over other fund managers carrying out similar strategies, the issue here one of perception and disclosure.

Viridian says its advisers are not compelled to include the SMA in the advice offered to customers.

But the fact the firm houses its own SMA product and also offers buy-write strategies puts even greater impetus on full disclosure to advisers and clients considering the switch from Westpac.

Viridian’s pitch to 90 or so of Westpac’s advisers — it wants to take 175 staff in total including management and support employees — has started, although is said not to be sitting well with a group of those targeted to move.

It’s also interesting how the relationship between Westpac and the boutique firm has evolved. As Viridian poached its 27th adviser from Westpac a year ago, the bank started action in the Supreme Court of Victoria over alleged breaches of contract by three advisers that jumped across.

It is understood the matter was settled out of court and not long after the pilot referral arrangement between the firms began.

What is clear is that with interest rates remaining at historic lows and the domestic economy slowing, one could argue that seeking the right financial advice is even more important for investors.

But that comes as ASIC is breathing down the neck of those at the coalface of wealth management and advice companies, and public distrust remains sky high after the telling stories uncovered at the royal commission.

“Independent” is a word that the corporate regulator has already warned wealth and advice firms not to use, unless its iron-clad, as at least one company found out last year.

The sure bet is that ASIC’s renewed vigour will be felt in 2019.