A lot has been said about the “benefit of the doubt” recently. As the scandal engulfing National Australia Bank develops, any doubt about the need for deep, fundamental change in the financial planning industry is fast evaporating.
In the wake of revelations of similar issues at Commonwealth Bank, NAB’s issues merely seem inevitable. It’s almost what we’ve come to expect – we’ve been conditioned to accept that it’s normal for an institution to have rogue planners on its books, to provide conflicted and inappropriate advice to clients, and then to cover its tracks by doctoring files.
But we should be surprised less by the fact that it’s happening than by the fact that so far only two institutions have been identified as doing it. Make no mistake – as Professional Planner has said before – the issues of the kind uncovered at Commonwealth and NAB simply cannot be confined to those two institutions.
NAB, like Commonwealth, says the incidences of advice failure are isolated and infrequent, and that it has identified the problems and moved to fix them off its own bat (as if it should have done anything else).
At some point, a litany of “isolated incidents”, across a growing number of institutions, becomes something far more fundamental and far more worrying. That point is right now. The benefit of the doubt is fading.
Until fundamental change is forced upon a sector of the industry clearly unable to clean up its own act, we will continue to see the inevitable consequence of trying (and failing) to hold two opposing and irreconcilable concepts of what a financial planner is.
Paid to sell
On one hand, there’s undeniably a view that a “financial planner” is nothing more than a conduit for an institution’s in-house investment, insurance and superannuation products. As long as planners are paid for what they sell, they’ll sell what they’re paid for.
On the other hand, there’s the concept that a financial planner represents the best interests of the client, and is in the business of providing non-conflicted, professional services to the client. If a planner is paid for services they provide, they’ll provide the services they are paid for.
Financial planning businesses- especially the big, institutionally owned ones – cannot have it both ways. They must opt for one or the other. So far, you’d have to say it’s the idea of financial planner as product flogger that’s winning. If that’s what they want, so be it, but if that’s what they want they must surely forfeit the right to call their employees “financial planners”.
Affront to every planner?
What they are doing should be an affront to every single financial planner, everywhere – irrespective of who they work for. Be in no doubt, this problem is your problem. Every financial planning scandal undermines your position, and devalues what you do. If financial planning sinks because of the avarice and ineptitude of a handful of institutions, you’ll go down with them. You’re lashed to the mast, and they’re steering your ship onto the rocks.
In a recent round table hosted by Professional Planner and featuring the Shadow Treasurer, Chris Bowen (someone who knows about regulation of financial planning, having instigated the review that led to FoFA), the chief executive officer of Media Super, Graeme Russell, said one of the biggest problems super funds have in providing advice to members is that those members do not trust advice or advisers.
“Do not underestimate how much the financial planning scandals have undermined people’s confidence in taking advice,” Russell said. He’s talking about you. And this was before NAB.
In the bigger picture, it doesn’t matter one jot if your clients love you; the three in five or eight in 10 (or whatever the number is) people who do not use financial planning aren’t all stupid: a proportion of them have looked at how the industry works and do not want a bar of it.
Lip service
For too long, lip service has been paid to the concepts of professionalism, non-conflicted advice and the clients’ best interests, while, simultaneously, structures and cultures have been created where the worst practices flourish, and where they are rewarded.
That must change. Now. If it wasn’t already obvious how, it should be: the government should adopt, in their entirety and without reservation or delay, all of the recommendations of the PJC inquiry into education, standards and ethics, chaired by Senator David Fawcett.
It should announce, as a matter of urgency, that it will adopt all of the relevant recommendations of the Senate inquiry into the performance of the Australian Securities and Investments Commission (ASIC).
It should abandon once and for all the ridiculous claim that the Future of Financial Advice laws need to be watered down because they impose “too much red tape” on business. If anything, the rules could be strengthened further.
And it should reject suggestions that tougher rules can’t be implemented quickly without disadvantaging planners who cannot meet the new required standards. The time of giving the industry the benefit of the doubt is fast running out, if it hasn’t run out already. The mechanisms for change have already been created and it’s time to seize them.
Think the PJC and Senate inquiries’ recommendations are unpalatable, unfair, difficult and costly to implement? Just wait until a Royal Commission goes through the industry.
