Not enough is being done to stamp out all forms of conflicted remuneration from financial planning, according to consumer advocacy group CHOICE.
Erin Turner, CHOICE campaigns manager, last week joined Mark Rantall, chief executive officer of the Financial Planning Association (FPA) in a discussion of the sector’s professional and education standards.
Turner indicated the consumer group was hopeful about stakeholders’ intentions to lift standards.
“There’s an incredible amount of willingness to get this job done…a real recognition that this is essential for the industry and consumers,” she said, during a panel session at the Financial Advice in Super Symposium in Melbourne last Thursday.
“This whole process is about getting rid of the cowboys and keeping the trusted professionals.”
View from the FPA
Rantall delivered an update on some of the recommended actions outlined in the March 2015 Parliamentary Joint Committee (PJC) report into professional, ethical and education standards.
“There’s a little bit of work to be done, and while we have got broad industry support, the devil is always in the detail,” he said.
The Financial Professionals Education Council is currently linked with 17 Australian universities, though is yet to be finalised, having missed its 1 July, 2015 deadline.
“I think we’re under critical time pressure,” Rantall said.
He noted the establishment of the Financial Advisers Register, but emphasised that further refinements were needed.
“Frankly, the register today is a little misleading to consumers, because not all of the professional bodies listed there would cut the mustard in terms of being approved [by the Professional Standards Council],” he said.
Rantall explained the brevity of his address, indicating he was due to present as a witness to a parliamentary committee inquiry into forestry-linked managed investment schemes, and how consumers had been disadvantaged.
Conflicts are still not fixed
Speaking from the consumer perspective, Turner pointed to remaining structural problems within financial services and financial planning.
“Conflicted remuneration wasn’t addressed by the [Parliamentary Joint Committee] PJC report, it hasn’t been very well explored by the Financial System Inquiry,” she said.
“The Future of Financial Advice debate dealt with some of it…but we still see asset-based fees, we still see commissions, particularly in advice on insurance.
“It’s important that conflicted remuneration is stamped out. That’s when consumers can trust that the adviser they’re talking to only works for them and is only giving advice in their interests.”
Turner was also critical of the overarching vertically integrated model of Australia’s financial services industry, referring to a recent Roy Morgan study from 2013-2014 that showed “consumers are just befuddled by multi-branding”.
This indicated more than 50 per cent of people who were clients of Commonwealth Bank-owned Australian Financial Services licensee Financial Wisdom thought they were dealing with an independent adviser.
“This issue hasn’t been well explored by recent reports – not by the FSI or the PJC – and it’s something we’re going to have to grapple with in the coming years,” Turner said.
Regulatory powers and compensation
She also emphasised CHOICE’s belief that the Australian Securities and Investments Commission (ASIC) needs greater powers to prosecute corporate representatives complicit in the delivery of conflicted financial advice.
“The regulator needs consistent funding…and funding at a higher level to enforce…so that ASIC is able to ban managers, not just the bad advisers,” Turner said.
Compensation schemes also received a mention, with Turner reiterating calls for financial institutions to jointly fund a “compensation scheme of last resort”.
“So that when a cowboy goes bust and the consumer can’t get the compensation they deserve, there’s a safety net,” she said.
“There is controversy around who pays, but there’s a consumer view that this is part of being a profession.”
Despite ongoing challenges, Turner also emphasised there were a number of positive outcomes.
“It’s actually been quite a hopeful process…there’s this broad recognition among financial planners that this needs to happen, it needs to work and we need to deliver for consumers,” she said.
“We’re not sure exactly what it will look like, but I am hopeful we can get a solution that’s going to work for everyone.”
