31 July 2006

Why AMP got busted

This is something that I didn’t think that I’d re-visit for a little while, however, the whole situation that blew up last week requires some reflection.

For those who don’t know, AMP Financial Planning was pinged in a big way by ASIC for an large ongoing amount of inappropriate advice being given out.

Basically, what was happening was that advisers were recommending that their clients roll over their superannuation to another fund, which was, more often than not, administered by AMP.

This isn't bad in itself.

But they were doing it enough to warrant a second look by the corporate regulator. And they were giving inadequate reasons for such recommendations whenever they did it. Finally, they weren't discussing what it was going to cost clients to roll over.

Now it’s the worst kept secret in the industry that advisers are under pressure to do exactly that – sell the products provided by the company that you represent.

And why not? It’s bleeding obvious to even the most financially illiterate observer that an AMP-branded adviser, or anyone else for that matter, is going to be told to push the products of the hand that feeds them.

But from the other perspective, how many mug investors know that Godfrey Pembroke, for example, is a member of the National Australia Bank group of companies, which also includes MLC? How many investors know that RetireInvest is part of the global ING group?

This blogger was formerly employed by and represented another financial institution which also just happened to have funds management, life and general insurance and banking operations.

Yes. We were told in no uncertain terms that, although we had various products from various providers on our approved product lists, we were to make sure that our first choice was from the providers in our group of companies.

This, when it was painted in such stark language, caused me to re-think my career in financial services.

Now I left the advice business in 2003 when it became clear to me that working for the same company as the product provider caused all sorts of dodgy situations.

My personal experience went something like these:

Story 1:

Boss-man: (at a meeting of advisers in the area/region/zone/district) We need sales to improve. So we’d like you to “churn”.

Adviser 1: Isn’t that unethical?

Boss-man: Other areas/regions/zones/districts are doing it.

Adviser 2: Surely that doesn’t mean that we should.

Boss-man: Look. All you have to do is find some good reasons to get your clients to do it.

Adviser 3: Could you provide us with some written guidelines that illustrate how we can do this ethically?

Boss-man: No. This is simple, straightforward stuff. You should be able to work out how to do this. Or maybe you think that a job here is not for you?

Note that “churning” is a particularly smelly practice that involves swapping existing clients from one product to another for no reason at all other than to collect another fee on the way through.

Story 2:

Boss-man: (at a sales seminar) I’ve brought in a “BDM” to explain to you why you should consider moving your clients in product X to product Y.

BDM: Thank you, Boss-man. Folks, your clients are currently in the equivalent of a Mitsubishi Magna (large-medium family sedan, for those outside Australia). How good would it be if you could move them to a Rolls-Royce?

Adviser 4: Sticking with your car analogy for a moment, what if what they really need is not a Magna or a Rolls Royce, but a Toyota Corolla?

BDM: Who wants one of those, really?

Adviser 4: Isn’t that between us and our clients?

Note that a BDM (Business Development Manager) is a representative of the product provider who liaises with the advisers similar to how a drug company sales representative might liaise with a doctor.

Doctors don’t get sales commissions, though.

But let’s put that aside and look at the argument.

Financial institutions such as life companies, fund managers and banks all rely on a dealership network of sorts to market their products.

“So what?” they say, “Doesn’t Ford and Toyota rely on a network of dealerships to sell their cars? Don’t Telstra and Vodafone relay on a network of dealers to sell their mobile phones?”

This is a valid argument.

If an investor goes into the office of a financial adviser from AMP or anyone else who also manufactures financial products, he should expect to receive advice that products from AMP are the best for him.

And, in some way, shape or form, he will receive a Statement of Advice to that effect. It will say that the product that the adviser is recommending is most appropriate for him for reasons A, B and/or C.

It’s at this point that the uninitiated usually ask “Hang on. If they’re providing advice, shouldn’t they be considering all products equally?”

Well, they should at least be considering a broad spread of products, yes.

Certainly, that spread should be a lot broader than what would be on your typical Approved Product List (APL) for your adviser from the particular dealership that that adviser works for.

Where a financial institution’s argument about being a dealership for in-house products comes unstuck is in the question asked above. And if you muttered "Conflict of Interest" under your breath, give yourself a point.

Does a car salesman for Toyota consider that they are an “auto-adviser”?

Should a mobile phone salesman at a Vodafone branch be considered an adviser?

The answer is a no-brainer. Product advice of any sort requires products from a variety of providers to be considered. At least, if you would like objective advice to be provided, anyway.

The dealership argument is a sound one. However, it is rendered null and void by the fact that the dealers themselves are simply not advisers – they are salespeople.

A financial institution, at this point, will jump up and down and scream, “How, then, do we get our product out there, for Joe Public to invest in/buy/use?”

The answers to this are pretty easy, actually:

  1. Produce stuff that is worth it to consumers to use. Concentrate on old-fashioned values like high returns, low fees, simplicity and ease of use and easy to read documentation. There are companies out there who are doing this now, and who do not rely on a network of financial advisers to sell their product.
  2. Cut out the middle man and advertise directly to clients. Clearly, you’re uninterested in providing a service that’s worth anything to anyone if your advice network is merely an expensive rubber stamp. Why would, or should, clients accept bits being sliced off here or there if there is no value being provided?
  3. Call your network of advisers, “salespeople”. This is just telling it how it is. Why mislead clients further by creating the expectation that they are getting something objective?
  4. Put advisers’ APLs into a client friendly brochure. Why continue to be bashful about the fact that advisers are tied to a particular provider? What is it that you’re really ashamed of?
The fact is that AMP got busted. But it could have been anyone.

AMP are to get an enforceable undertaking from ASIC and this will probably last for the next few years at least.

Bravo to ASIC for targetting the dealerships.

It should, of course, be remembered that the advisers are every bit as complicit as the dealership that they represent. Yes, I know it's hard saying no, but if soldiers can be found guilty at war crimes trials for merely following orders, then advisers should, most certainly, not get off lightly in the least.

But it is clear to even the most disinterested of observers that it was AMPFP's internal policies in the first place which has lead to ASIC's action.

Having an interest in the industry, the very important piece of wishful thinking is that the progressive move away from commissions towards fees-for-service should prevent this sort of thing from happening in the future.

Sadly, I'm not positive that this will be the case. AMP will still require sales. So too will other institutions that produce their own products. And thus there will always be some kind of pressure on advisers to tow the line.

But the four points I've outlined above would, at least, make the whole thing a lot more honest.

Disclosure: This blogger owns shares in National Australia Bank Limited.

Standard but necessary disclaimer: This is not advice. Only a complete idiot would think that any of this constituted advice. It's not even vaguely reasonable to consider this to be advice. If you are in any doubt as to the content of this, see a good, independent financial adviser immediately. They do exist.

25 July 2006

39th Skeptics' Circle

Yes it's up here at Mike's Weekly Skeptic Rant.

He's done a brilliant job, and the Scooby Doo theme is hilarious.

My highlight this time around is Aetiology's expose of the Discovery Institute's War On Science.

They've found a new weapon, and it appears to be global warming. I never knew that they were global warming denialists.

Elsewhere, as always, it is all good stuff.

Read it here:

Mike's Weekly Skeptic Rant - A Circle of Sleuthing Skeptics #39

18 July 2006

Has Israel finally gone too far?

I hate hypocrisy.

I hate it when I get caught out doing it. And I do it a lot. I should not be considered a role model.

But I most especially hate it when whole countries do it.

Now, I should point out in advance that not everyone in the country is as much a bunch of pricks as the guys heading the place up, but, geez, this is pure evil on a massive scale. And I have met citizens of this country who are quite nice people. They are certainly not in power at the moment.

Evil imperialist cu^ts are in control, and there is seemingly no end to the idiocy that is manifest.

And I for one can see this one escalating out of control. Possibly even to World War 3.

So lets look at the country in question:

The State of Israel.

A nation of about seven million people.

One of the world's truly historical places.

It's capital, Jerusalem, is holy to three rather large religions.

And no matter how much Israeli apologists in the media such as Rupert Murdoch play Israel as THE underdog of the world stage, Israel still manages to come out of most situations looking aggressive and nasty.

Israel has been its own worst enemy and cannot do anything right. Its domestic policy since the late 1990's has been a disaster.

I mean, seriously, how in fuck's name can this country endorse such wonderful policy decisions as opening fire on a gang of rock-throwing kids?

Flattening an entire Palestinian town because two Israeli soldiers were lynched.


So there is this history of overreaction from the Israeli authorities.

And there appears to be no guilt. At no point does anyone in the Israeli government think, or say publicly, anyway, "This is massively, overwhelmingly wrong."

So we have three Israeli soldiers abducted by Hezbollah in the last week.

Sure enough, Israel goes nuts.

But this time, nuts is an understatement. They appear to have said:

"Let's just torch Lebanon to the ground. Hezbollah are Lebanese, aren't they?"

Notorious pro-Israeli trouser-wearer, Colin Rubenstein, Executive Director of the Australia/Israel & Jewish Affairs Council writes in Crikey the following:

"This war is not against the Lebanese people but against Hezbollah."

Really? Well then, why target Lebanese civilians in the process?

On the same day, Antony Loewenstein, blogger, journalist and author of the forthcoming My Israel Question wrote, also in Crikey, the following:

"The Jewish state aims to redesign the Middle East through the barrel of a gun, imposing its will through the killing of civilians and destruction of civilian infrastructure."

This may be overstating things a tad.

However, what we do know is that as long as Israel has the USA for backup, they will continue to go berzerk at every little thing.

And they do. Dubya's microphone gaff shows that in the eyes of the USA, nothing is ever Israel's fault.

Rubenstein appears to believe, along with most conservative Israeli commentators that Israel is not responsible for attempting to bomb Lebanon back to the stone age.

Rubenstein is clearly an idiot.

What is a concern, however, is that Israel likes to invoke the Mugabe defence whenever things aren't going her way.

It's always Syria's or Iran's fault. Or Hamas, or Hezbollah.

What makes it worse is the speed of the accusation of "antisemitism".

Antisemitism is an ugly word that is used as a particularly effective red herring. It stifles debate, and if you proceed with even legitimate criticism, you are tarred with a brush which colours any credibility you might have had in a light shade of mud.

Israel, and Israeli apologists are very much adept at using this red herring. And, as with Mugabe, it gets tiresome after a while.

And if Israel do it too often, people notice.

Methinks Israel doth protesteth too much.

11 July 2006

How, exactly, does prayer work?

When I was growing up, I never understood the point of prayer.

I still don't.

I don't see the point of it, and I don't get what use it is to anyone, least of all, God or anyone else.

Certainly, in the context of the Christian interpretation of God, praying seems like the silliest activity a worshipper could possibly engage in.

Consider this:

1. It is God's prerogative as to whether or not He answers, or even agrees to, a request in a prayer.

2. If God wants something done, He goes ahead and does it.

3. Everything is meant to be done the exact way that God intended.

4. God never gets anything wrong.

We know from the information provided that God is omniscient, omnipotent and perfect.

We also know that no one dictates God's Will except for God.

(What we also know is that, in all my years of observing believers in the act of worship, I have never once heard anyone use the word, "Please". A fairly major liberty to take with an perfect, omnisicient, omnipotent being, I would think. I'm sure I'm not the only one who thinks that if God exists, he must be Almightily pissed off with people making demands of him all the time and not saying please, but I digress.)

Therefore, for prayer to have any benefit over no prayer at all, one or more of the following must occur:

1. God must have a rule that He agrees to the request in a prayer more often than not. This kind of overrules God's Will a wee bit, so we can rule this out.

2. There could be stuff in this world that happens independently of God's instigation or knowledge. Unlikely, given that God is meant to be omniscient and omnipotent.

3. God double-thinks Himself. A perfect being double-thinking Himself? Yeah right.

4. God gets things wrong occasionally and has to be put right by us mortals. See point 3.

On the face of it, this means that prayer simply cannot work. Unless, and this is quite likely, I've missed something.

Could someone please explain it to me?

10 July 2006

38th Skeptics' Circle

Skeptic Rant is hosting this this fortnight, and as always, there is a wealth of good reading. Skeptic Rant has done a superb job, and the cola motif is excellent.

This fortnight, my attention was taken by an article over at xenophile. This one goes for the jugular on an academic who appears to have found a new and creative way of saying, "The kids of today don't give us elders and betters no respect!"

Elsewhere, there's tonnes of good stuff.

Read it here:

Skeptic Rant: Thirsty for Truth? Try Skeptic Cola