The financial advice arms of Australia’s biggest banks have come under fire again, with the corporate watchdog finding their advisers failed to comply with the best interests of customers in 75% of advice files reviewed.



The Financial Services Council is already in damage control. It has pledged to work with the regulator and individual financial licensees to “compensate clients and make things right” where necessary .



The Australian Securities and Investments Commission (Asic) has released the results of its latest investigation into the financial advice industry, conducted over two periods between 2014 and 2017.



It investigated the quality of financial advice being offered by the two largest financial advice licensees owned or controlled by the Commonwealth Bank, ANZ Banking Group, Westpac, National Australia Bank and AMP.

The study, released on Wednesday, notes there is an “inherent” conflict of interest arising from banks providing personal financial advice to retail clients while also selling them financial products, but that banks must manage that conflict appropriately.

The review found that 79% of the financial products on the firms’ approved products lists were external products and 21% were internal or “in-house” products. However, 68% of clients’ funds were invested in the in-house products.

Asic also investigated whether, when clients were advised to switch to in-house products, the advice satisfied “best interests” requirements.

Photograph: Australian Securities and Investments Commission

It found that in 75% of the advice files reviewed the advisers did not comply with the duty to act in the best interests of their clients. It also found in 10% of cases the advice was likely to leave the customer in a “significantly worse financial position”.

Asic has attacked the findings, saying it would ensure appropriate “customer remediation” took place between banks and their clients.

It said it would also introduce “more transparent public reporting” on approved product lists, including where client funds are invested, for advice licensees that are part of a vertically integrated business.

The acting Asic chairman, Peter Kell, said the regulator was already working with the major financial institutions to address the issues identified in the report.

“There is ongoing work focusing on remediation where advice-related failures have led to poor customer outcomes and the results of this review will feed into that work,” Kell said.

The Financial Services Council has responded to the report, saying it would work with the regulator to implement processes for licensees to improve.

“For the 19 out of 200 files reviewed where Asic indicated significant concerns, individual licensees will work with the regulator to compensate clients and make things right,” it said.

But it has questioned Asic’s definition of “best interest duty”, suggesting it takes issue with Asic’s characterisation of the quality of financial advice being offered.

“In the report Asic has adopted its own interpretation of how the best interest duty should be applied,” it said. “In drawing conclusions regarding ‘non-compliant advice’, Asic has considered file documentation alone; it has not consulted with individual clients or advisers. It is the FSC’s view that, before drawing definitive conclusions about the appropriateness of advice, the client and the adviser should be consulted.”

On Tuesday, Asic said Commonwealth Bank would be forced to pay an extra $2m to financial advice victims, on top of $5m already offered, as part of an on-going review of the bank’s redress scheme for victims of former financial advisers.

The banking royal commission will hold its first hearing in February.

