So AMP have been 'busted'. Last week ASIC got them to agree to an enforceable undertaking, part of which was to contact a number of clients who had not received an appropriate 'basis of advice' for investment recommendations.
The term 'basis of advice' is important. It is the link between the strategy and investment advice that is given to a client and the client's goals and objectives. For example, a client may have the goal of retiring at age 60. The advice that a financial planner might give her is that she should salary sacrifice extra superannuation contributions. The 'basis of advice' would be that salary sacrificing will save tax, that the salary sacrifice contributions are invested in the low tax environment of superannuation and that at age 60 that person will be able to withdraw the superannuation tax free under the proposed superannuation changes.
When we are talking about AMP, we should note that the financial planners within AMP's structure trade under a number of brands including AMP Financial Planning, Hillross Financial Services, Arrive Wealth Management and PremierOne. This is one of the tricks for a person looking for an independent financial planning firm, who would have through that Hillross = AMP?
What I was interested in was a quote in the Australian Financial Review on the 28th of July. Craig Dunn, AMP's Financial Services director was quoted as saying that '.........customers go into the restaurant knowing this is the food that is served'. Putting aside the crassness of equating a financial services relationship with choosing a restaurant, this is a big admission. The food in an AMP financial planners office will be AMP solutions. That is probably not surprising, however tougher for consumers to keep an eye on when they are in a Hillross office, or Arrive Wealth.
And how good is the food in the AMP restaurant? AMP's two big Australian share funds have both underperformed the market index over 5 year periods by 1.5% a year. Which is not too good really.
The benefit of finding and independent financial planner is that they are not restricted to serving just the one dish. They can serve up any solution that best suits their clients. Independence also means that the financial planner is not receiving any commission from the investment products, so the only way that they are getting paid is through client fees. This aligns their interest to yours, because you are both keen to optimise your investment experience. You are because you want the best financial result. The financial planner is because they want you to be a satisfied client who will pay them a fee again next year.
NB. All opinions expressed in the blog are those of Scott Francis. They should be considered general information only. They do not reflect the opinions of any other party, including compass financial planners Pty Ltd. You should not act on this information without seeking professional advice.