Financial products and sales incentives

Checking limits and connections

It's important to check that an adviser can provide advice about the financial products you currently own, or if they're limited to selling particular products.

It also pays to check the relationships the adviser has with any people or businesses they refer you to.

These checks are important because both of these situations may influence the advice you receive.

In-house products

Most advice businesses have an approved product list (APL) that contains financial products they have researched and given their advisers authority to provide advice about.

Many APLs contain 'in-house' products. In-house products are products that are provided by a related party, such as the bank or other financial institution the adviser is employed by. APLs may also contain products from an unrelated product provider, which are not in-house products.

In-house products may create a conflict of interest for the adviser. See ASIC's media release on how large financial institutions manage these conflicts of interest.

Without special authority from their licensee, the adviser may not be able to give you advice about your existing financial products if they are not on their APL. Instead, the adviser is likely to recommend a product from their APL.

Before you get advice, it's important to ask the adviser whether any of your existing products are on their APL.

Check the product areas an adviser can provide advice on.

Financial advisers register

Switching products

If you already have investments when you see an adviser and they recommend you switch to one of their in-house products, you should ask the adviser to explain why your existing investment is no longer suitable.

Smart tip

You may lose important benefits such as insurance if you switch to another super fund. If you're unhappy with your current fund, talk to them first. Make sure you understand the pros and cons before you switch funds.

Don't be pressured into buying an investment or life insurance product you don't need or want. It can be very difficult to get out of some investments and if you switch life insurance policies you could lose the benefits of the previous policy. Make sure the new product is right for you before you act on the adviser's recommendations.

If you decide to switch to an in-house product, be aware that the adviser may receive some sort of benefit, like a performance bonus for selling you that product.

See questions to ask a financial adviser for talking points you can use to check the suitability of any product the adviser recommends.

One stop shops

ASIC has seen a significant increase in advisers offering 'one stop shop' services that aim to cater for a number of different financial service needs. This may be a good way for you to save time, but be aware that it may also mean the adviser receives monetary benefits for referring you to the other professionals or businesses they've recommended.

How one stop shops work

An adviser may recommend you set up a self-managed super fund (SMSF) with a strategy to invest in property. The adviser may refer you to a property developer that can help you find an investment property, and may also recommend an accountant to help you with the paperwork to set up an SMSF.

In this situation, it's important to be aware that the adviser may have a pre-existing business relationship with the professionals they've recommended. This means the adviser is likely to receive a referral fee or other benefits that could amount to thousands of dollars.

The adviser may also have a personal interest in the property development or accounting business.

See questions to ask a financial adviser for talking points you can use to check for sales incentives.

Case study:  Rachael and John are advised to set up an SMSF

Couple With AdviserRachael and John see an adviser about their super. The adviser recommends that they put their super balances into a self-managed super fund (SMSF), and that their SMSF borrows $300,000 to invest in a residential property.

Rachael and John are referred to an accountant, mortgage broker and property developer to implement the recommendations made by the adviser.

The Statement of Advice (SOA) they receive says that the advice business does not have any financial interest in, or receive fees, commissions or benefits from any products, investments or service providers recommended in the SOA.

While the advice business does not directly receive any fees or benefits, the financial adviser is a common owner of all three businesses he's recommended Rachael and John use. These businesses will benefit from the adviser's recommendations.

Rachael and John can check if the adviser has any involvement in the other businesses by doing a company and business search through ASIC for a small fee or by checking ASIC's financial advisers register.

Don't be afraid to ask an adviser why they are recommending a particular product. You should also ask them if they, or the advice business they work for, will benefit from any referrals they've made.

Related links

Last updated: 27 Aug 2018