Bank advisers attacked

The quality of investment advice given by banks has hit the headlines on two fronts this week.

Wednesday, November 10th 2004, 6:33AM

First up Consumer has had a go at ASB Bank for incentivising its advisers to sell growth funds.

According to Consumer ASB pays its advisers bigger incentives if they get clients to put their money into growth funds over income funds.

The institute claims that this creates a significant conflict of interest.

It says an adviser would earn no incentive payments from placing a $100,000 lump sum investment into a low-risk cash fund, only $100-$150 if it goes into a low-risk mortgage fund, but up to $900 if the money goes into a higher risk investment.

Consumer senior writer David Hindley says that advisers can earn more than $100,000 in incentives on top of their salaries.

“We think that people see bank adviser staff as different from other types of advisers,” said David Hindley.

“Knowing that they’re backed by a bank and earn a salary is often seen as giving them greater independence or trustworthiness, and ASB trades on that.”

Consumer says that while other banks also have incentive schemes, none are as aggressive at promoting higher-risk products as the ASB scheme. ASB Bank head of retail banking and marketing Barbara Chapman rejects Consumer’s claims.

She says customers are treated under a formulated advice process.

Advisers use a bank planning guide and clients have to sign off before the plan is implemented. She points out, as is shown in research house fund flow reports, that most of the money advisers place goes into income funds such as its mortgage trust. “

Just under three quarters of ASB Bank funds under management are in the income or cash funds.”

Aside from Consumer, the Banking Ombudsman Liz Brown said that complaints about banks’ investment advice were the biggest issue for her office in the past year.

She said that 2002 was probably the peak for complaints against the banks’ advice businesses, and it has been tailing off “a bit but they're still at the front." Westpac topped the list of complaints received, but it also had the biggest drop.

The bank faced 154 complaints compared with 213 the previous year. There where also 69 disputes (144 last year). In terms of number of complaints ANZ was next followed by National Bank, BNZ and ASB.

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