Nationals senator John Williams might have overstepped the mark during a senate hearing this week when he likened rogue financial planners to paedophile priests, but the strength of the Senator’s language is a fair indicator of the level of frustration that policymakers currently feel towards the financial planning industry and the institutions that operate in it.
The Senate Economics References Committee Scrutiny of Financial Advice inquiry heard repeated evidence of financial planners either being sacked or leaving an institution because they are being investigated, and almost immediately popping up again at a rival institution and just carrying on with business as usual. it also heard consistent evidence that institutions have been either unwilling or unable to do anything about it.
“We’re getting clear evidence today that planners have been sacked, and they go down the road and start up at another institution,” Williams said.
“I mean, as a planner, it’s like the paedophile priest doing the wrong thing and [he] just changes parishes, and doing the wrong thing again – this is where I’m coming at it [from].”
If there was ever a statement that summed up how institutions regard the relationship between financial planner and client, it is CBA boss Ian Narev’s reported claim that seeking financial advice is “a buyer-beware activity”.
A witness at yesterday’s hearing, Marilyn Swan, whose mother is a victim of former CBA financial planner Don Nguyen, said she was granted a face-to-face meeting with Narev at which he made the “buyer-beware” statement.
Fiduciary relationship
“Buyer beware” is probably actually closer to the exact opposite of how a fiduciary relationship works. If there’s one person that a consumer should be able to trust unreservedly, it’s a financial planner who owes that client a fiduciary duty.
But perhaps it gives an insight into just why the banks have been blind to the fiduciary duty that financial planners are supposed to owe to clients, and why they have not been particularly worried about employing high-sales financial planners who have left competitor institutions in disgrace.
If individuals exist merely as customers, and if a bank’s aim is simply to increase what they like to call their “share of wallet” of each customer, a sales mindset is understandable, even if it’s not acceptable. Caveat emptor is a mindset mired in the world of products and sales-driven cultures.
Now, however, the banks support the idea of putting on record with ASIC the circumstances for triggering a serious breach report and of any financial planner sacked or otherwise forced out. One bank has opted to put on the record the reasons for every single financial planner that leaves it – whether sacked, poached, retiring, or making a hasty exit after discovering their behaviour is being investigated.
Yesterday the chief executive officers of Macquarie Bank (Nicholas Moore), CBA (Narev) and NAB (Andrew Thorburn) fronted the Senate inquiry to explain themselves. ANZ sent deputy CEO Graham Hodges, and Westpac didn’t appear.
The heads of the banks’ wealth management and/or financial planning divisions – Greg Ward (Macquarie), Annabel Spring (CBA), Andrew Hagger (NAB) and Joyce Phillips (ANZ) – accompanied their respective bosses.
Uniform support
A striking aspect of the hearing was apparently uniform support from the banks for raising the professional standards of financial planners. Those higher standards only needed because of the conduct of financial planners representing the very institutions appearing at the inquiry.
The hearing focused on how much wriggle room licensees have in determining what constitutes a “serious breach” that should be reported to ASIC, and how much time institutions spend negotiating with ASIC on this issue. Narev said the principles CBA favours are to not get too rules-based, to escalate the situation quickly, and then to make a judgement. He described the CBA advice business as being “fundamentally different” from the one that existed when the advice issues occurred. Spring said CBA has put in place an adviser “early warning system” that flags, for example, things like insurance churning. And it has also put time and effort into “culture and education and training that we have put our advisers through”.
Moore acknowledged it was not a good look for the issues in its advice business to have been uncovered by ASIC, not by the bank’s own risk compliance procedures. Ward said Macquarie has changed its compliance team: 82 per cent of the team are new and more senior than the people they replaced. It’s invested $15 million on new advice technology, including Xplan. It’s carried out 12,500 hours of face-to-face training of advisers.
Hodges said ANZ has upgraded its training of financial planners, and the technology that supports them. Phillips said it’s added 10 quality assurance people focused on continuous training; and it has “fixed” the issues that plagued Prime Access – for which it admitted last week it had been charging clients for services they had not been provided with.
And while the banks’ actions are laudable, all of it has been done only after they were caught out. They appeared, as a group, reluctant to or incapable of bringing so-called “rogue” advisers to heel or to provide contracted services.
Expensive and time consuming
It could be because it’s expensive and time-consuming to train and run a truly professional advice business, and that would have affected the profitability of the banks and their investment products and services.
It could be because profit was put ahead of the interests of clients.
It could be because it was easier and cheaper to help advisers cheat – or at least turn a blind eye to cheating – on those exams the advisers actually had to do.
It could be because it was more profitable to put sales ahead of true advice.
Or the answer could be “e) all of the above”.
Whatever the reasons were in the past, Hodges said professionalisation of the financial planning industry is “important” today.
If that were to happen – if a true financial planning profession were to come into being – it could transform a bank’s relationship with its financial planners, and with its customers. A financial planner with true professional responsibilities and an obligation to adhere to true professional standards would unequivocally place the interests of clients first.
If the interests of Hodges’ bank – say, to maximise sales of a particular product, or to hit sales targets of any kind – were to conflict with the interests of the client, the client’s interests have to win out and a professional planner would refuse to comply. They then face the issue of either continuing to work for an employer whose aims are at odds with their professional obligations, or seeking employment elsewhere. Such is the lot of the professional.
There’s a lot of water to flow under the bridge before we get to that point, though.
In the right direction
The overall thrust of the inquiry suggested that steps are being taken in the right direction. Hagger told the inquiry that from now on NAB intends to make public the reasons for any financial planner leaving the NAB group.
Thorburn gave in-principle agreement to lift the gag clauses on all consumers compensated by NAB for poor advice. Narev said that CBA would not take action against customers who might have been subject to a gag clause but have chosen to speak about their assessment under the open advice review. In future, he said, gag clauses would not be applied.
And Hagger revealed that NAB’s pay structures for its financial planners have evolved beyond sales-based criteria and past even the so-called “balanced” scorecard, and that they now make no reference at all to sales.
But the frustration of the members of the committee was palpable – particularly when it came to how slow some banks have been to compensate the victims of rogue planners – and it was this frustration reflected in Williams’ line about priests.
