Three things happened this week that should send a chill down the spines of all self-respecting financial planners. In fact all these things happened on Monday. It was quite the start to the week.
First up, the ABC TV program Four Corners exposed further problems within the Commonwealth Bank’s financial planning arm; secondly, BT Financial Group revealed its contribution to Westpac’s half-year profit; and finally, both Four Corners and the Sydney Morning Herald caught up with the former Commonwealth Financial Planning (CFPL) planner Don Nguyen.
First things first.
On Monday night Four Corners again turned its attention to the financial planning industry, and to CFPL in particular. Every time the light is shed on this organisation, it seems, it spots a cockroach scuttling away to the safety of the darkness.
CFPL has been singled out because the issues in question are extremely serious – but also because it got caught. Don’t believe for one minute that similar issues do not exist in other institutionally-owned licensees and dealer groups, and that executives in those places are not breathing a big sigh of relief – for now, anyway.
The Four Corners program was just one more in a long line of stark examples of why a sales-led approach to financial planning is wrong.
Cultural issue?
It showed again what can and does happen when sales and products take precedence over advice. It’s a cultural issue we’re talking about here. It’s a view of the world so deeply ingrained in large financial institutions as to be second nature.
That was illustrated in the release of BT’s contribution to Westpac Banking Corporation’s result. It’s done well: cash earnings up by 21 per cent to $438 million for the six months to March 31. Westpac shareholders will be pleased.
But what caught the eye were the highlights that BT set out in its media release. BT is not alone and is not unusual in this regard. It’s an example here only because its results were published the same day the Four Corners program went to air.
If you were to categorise the BT highlights into whether they relate to “product” or “advice”, then on Professional Planner’s reckoning they are overwhelmingly “product” highlights – FUM, FUA, market share, platform assets, and so on.
BT chief Brad Cooper did say that the company cares “deeply” about the success of the financial advisers it works with, and that BT is committed to supporting independent financial advisers (IFAs) to deliver on their clients’ objectives.
It’s all about the product
But there was no insight into what contribution is being made by selling financial planning services. Every measurement related to product, to aggregating funds on platforms, and to market share. Again, this is not to single out BT or Westpac – they are typical.
It’s a legitimate question to ask of any institution that presumes to make money from ordinary Australians by offering to advise them. If an institution’s focus is on product, and if “advice” must be be linked to product (either sales or FUM) for it to be viable, then it’s not really advice at all. It’s distribution.
The third gobsmacking moment this week came in a Sydney Morning Herald report that quoted the former CFPL planner Don Nguyen saying that while he was employed by CFPL he “didn’t know” that what he was doing was wrong.
Was there ever a more compelling reason to make it compulsory for all financial planners to belong to a professional association? A real professional association, with a meaningful and enforceable code of practice that makes it crystal clear to the practitioner and to the practitioner’s clients what standard of behaviour is demanded; a code that provides timely, meaningful sanctions, including loss of livelihood in extreme cases, for breaching the code; and sanctions that can be applied without having to wait for years for ASIC to do something.
Targeting managers and executives
For ASIC’s part, it came out this week in a pre-emptive statement ahead of the Four Corners program to say it wants power to take action against managers and executives in financial services firms that have done the wrong thing. That would be a fine reform indeed, if we had confidence in ASIC actually to exercise those powers – its track record in the CFPL case isn’t stellar: it was too slow; it didn’t make public enough the action it took; and it failed to support the whistle blowers who spoke out.
If we can’t rely on the regulator, if institutions are going to remain product focused, and if they’re going to continue to reward staff for selling product rather than giving advice, then it’s ultimately going to come down to individual, professional financial planners having the confidence and the courage to stand up and say “no, what is happening here is wrong and I will have no part in it”.
