“At long last!” was the predictable cry from the public and the media when Bernie Ripoll MP announced the terms of reference for the Parliamentary Joint Committee Inquiry into financial products and services. Financial planners have been less enthusiastic, not because it has been precipitated by Storm and Opes Prime, but because of its wide-ranging terms of reference and the negative commentary that followed the announcement.
Addressing corporate failures and improving the system is a good thing. But will this be just another round of submissions, bloodletting and blaming with no change and no progress? We will of course participate actively in the inquiry and trust that it will be all- encompassing, include the banks and stockbrokers, and that we will get a fair and equitable hearing. From Westpoint, ACR, Fincorp and Shadow Shopping through to AMP’s Enforceable Undertaking, the global financial crisis and now Storm Financial, financial planners have been at the heart of criticism and adverse comment.
You could also throw in a few stockmarket transactions, property disasters and other corporate failures and still find that financial planners stand accused, despite having little or nothing to do with these situations. Now we have the opportunity to set the record straight, and to address some fundamental problems in defining us as a profession in the eyes of the community at large. We want to correct some commonly held misconceptions about the financial planning industry. Australia has a worldclass regulatory system that has served the country extremely well, as evidenced by the extreme stress testing it has experienced over the past 12 to 18 months.
It is the envy of the Asian region and the source of much interest around the globe. It is sometimes even regarded as too tough. Financial Services Reform (FSR) has fundamentally and significantly changed the way financial planners operate, for the benefit of consumers and the profession. Licensing, professional indemnity (PI) insurance, disclosure, management of conflicts of interest, conduct and raising the levels of competence are just some of the areas where we are well ahead, although not always perfect. We do not want wholesale change to the regulatory structure, nor do we want more regulation.
We want to plug the gaps to improve the system we already have. Reform is rarely without its drawbacks. FSR has contributed to the additional and sometimes unnecessary costs faced by financial planners and we must address this to enable more affordable and accessible advice. Disclosure has been at the core of FSR, and yet a 100-plus-page document (sometimes even three documents) has not necessarily served consumers well. We need to find new ways to advise our clients in a manner that is genuinely “clear, concise and effective” and yet provides an appropriate safety net for planners and their licensees.
Commissions are another source of misconception. Some 80 per cent of financial planners offer a choice in remuneration between fee, commission or both and yet commissions continue to be perceived as the cause of many recent failures; hence the inclusion of commissions in this inquiry. Excessive commissions, commissions that do not align with any service or advice, and product-directed commission structures are certainly losing their appeal amongst financial planners; let’s be very clear about that.
However, being aware of the business structures of many financial planners, and the client value placed on commission-based advice, means that we cannot simply ban commissions, but we can certainly address the practices that are not sustainable going forward. We expect, and are prepared for, much debate over regulation and commissions, along with other complex issues such as fiduciary obligation, retail compensation, financial literacy and even the use of the term “financial adviser”. The use of that term in the inquiry’s terms of reference raised the ire of many financial planners. It seems that part of our response to the inquiry must be to define who and what a financial planner actually is.
At the same time, we will be seeking to create a vision for the future of financial planning and the financial services sector. A vision that is sustainable, that the community can relate to, and that encourages Australians to seek advice from professionals who put their clients first; who charge a fee commensurate with the advice; and who deliver long-term strategies to achieve long-term goals. What could be hard about that?ÂÂ
