From the first moment that the plight of a group of Storm clients was made public, some media commentators began to make sweeping, derogatory statements that serve to inflame, rather than provide a solid and considered assessment of the situation, casting aspersions on the honesty and integrity of financial planners everywhere.
There have been cynical attempts to use the suffering of a group of everyday Australians as a blunt instrument against all planners, with one perceived weak spot being the target of many blows – commissions. The attacks have been two-fold – firstly questioning why planners should continue to receive remuneration when clients’ portfolios have lost substantial value; and secondly, assuming that advisers might be tempted to encourage clients to gear and invest beyond what is prudent, in order to increase the commission they receive.
Those who criticise planners often try to attribute a falling portfolio to bad advice from the planner, ignoring the larger realities of our recent market crash.
The FPA will also not tolerate any breaches of our Code of Ethics and Rules of Professional Conduct. Our investigations into Storm’s financial planners will reveal whether any breaches have occurred and we will take decisive action. The vast majority of FPA members, and no doubt all financial planners, meet high standards of professional conduct, are well educated and accredited, and subject themselves to the scrutiny of professional accountability.
The problem with financial advice in Australia today is not that some advisers choose a commission-based remuneration system, which is regulated, disclosed and managed more decisively and conclusively than any other remuneration structure in Australia, or around the world.
The real problem with financial services today is the fact that we will never be able to regulate everyone and everything in a free market economy to ensure perfect behaviour and perfect outcomes. And even if you could create this perfect world, you would need financially literate and educated clients who are fully aware of the ups and downs associated with high-risk investment strategies. They would only ever invest conservatively. All financial planners would be professionals of the highest education and standing, and all would be offering conservative strategies to minimise risk, with very average results, but safe, indeed.
Clearly, this is not the world we live in and nor will it ever be. But that doesn’t mean we shouldn’t strive to improve the way advice is delivered and received. Our priorities now must be to:
– Ensure we have effective regulation that provides confidence in, but does not constrain, how Australians choose to invest for their financial future.
– Fast-track consumer financial literacy initiatives, and provide clear and concise disclosure so consumers do understand what their financial planner or product provider has suggested, and how they will be remunerated. The FPA has already put a stake in the ground with the launch of a 10-page Statement of Advice, and we will work with the Financial Services Working Group to improve disclosure across margin lending and all other financial services products.
– Ensure consumers truly understand the old but true saying, “If it sounds too good to be true, then it probably is”, and are prepared to question their planner about remuneration, strategies and risk.
– Educate consumers on diversified investments, ensuring they don’t put all of their eggs in the one strategy basket.
– Encourage consumers to choose educated, accredited financial planners who have signed up to a professional accountability framework.
But our most important priority is to ensure that Australians continue to seek professional advice, because that is exactly what is needed in these difficult economic times.
Despite the high-profile occurrences that we have and will continue to deal with, the personal ethics and integrity of most financial planners are already unquestionably high. We should still strive to lift the bar higher and apply it more widely. The FPA will continue to up the ante, as well as educate investors and minimise risk and damage when failures do occur. We must protect the interests of investors and we must also protect the good name of the professional financial planners who are helping their clients with appropriate, long-term wealth creation and protection strategies.