NAB error again raises disclosure questions

National Australia Bank will clarify the relationships within its wealth management business to some financial advice customers following an Australian Securities and Investments Commission review.

An investigation by the corporate watchdog found that a number of advice licensees within the NAB Group had failed to disclose relationships between advisers, advice licensees and other members of the NAB Group that issue investment products.

According to ASIC, the non-disclosure occurred when customers were advised to acquire products issued by NAB Group-related firms, including MLC-branded products. Customers were provided with Statements of Advice (SoAs) and Financial Services Guides (FSGs) by their financial advisers that did not fully disclose the connection between each customer's adviser, the advice licensee and the recommended investments.

Disclosing associations or relationships between advisers, employers, authorising licensees and issuers of financial products to customers in FSGs and SoAs is required under the Corporations Act. However, as ASIC Deputy Chairman, Peter Kell recently asserted, vertical integration in Australia’s financial system is causing “clear issues from a competition and consumer outcomes perspective”.

“We have often seen product issuers compete vigorously for distribution channels (eg. financial advisers) as a way of increasing customers, rather than directly offering better products and prices to customers. This arises through ownership links or paying higher incentives. This has resulted in conflicts of interest and poor consumer outcomes,” Kell said in his recent opening statement to the Productivity Commission Inquiry into the state of competition in the Australian financial system.

Defective disclosure

In the latest example of a major bank's wealth business falling short of ASIC’s standards, at least 150,000 NAB customers received deficient disclosure either in SoAs or FSGs in relation to MLC-branded products and boutique investment manager products.

According to the regulator, the defective disclosure occurred following a failure to update template documents due to a process error. The licensees investigated by ASIC's Wealth Management Project in this instance were: National Australia Bank Limited; Godfrey Pembroke Limited; Apogee Financial Planning Limited; GWM Adviser Services Limited; Meritum Financial Group Pty Ltd; and JBWere Limited.

Following discussions between ASIC and the NAB Group, customers who invested in MLC-branded products will receive corrective disclosure when they log in to their accounts on the MLC website for a three-month period. NAB has also agreed to write to the remainder of affected customers currently invested in related products, explicitly acknowledging the issue and providing corrective disclosure. ASIC acknowledged the cooperation of NAB in this matter.

“This investigation is a result of ASIC's priority of improving compliance and disclosure standards in vertically integrated financial services licensees,” said Kell.

ASIC’s Wealth Management Project was established in October 2014 with the objective of lifting standards by major financial advice providers. It focuses on the conduct of the largest financial advice firms and their owners - NAB, Westpac, CBA, ANZ, Macquarie and AMP.

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