When Bernie Ripoll set sail on an inquiry into financial products and services in Australia back in 2009, he had no idea where it would eventually take him. Looking back, he likens the experience to being an explorer: setting off into the wild blue yonder, and discovering what’s there.
As chair of the Parliamentary Joint Committee on Corporations and Financial Services (PJC) inquiry into financial products and services, Ripoll had had clear parameters set by terms of reference, which were themselves framed in response to specific advice and product failures.
Even so, Ripoll maintains that this was one inquiry that could have gone anywhere.
“People often say, ‘Never have an inquiry unless you already know the outcome’,” he says.
“But I can assure you that we didn’t write this report before we started. When we started, it was a blank page. And I was determined to say, ‘Let’s see what happens. Let’s see where this takes us. Good or bad, either way, let’s just see what comes out’.”
What came out, as we now know, is the Future of Financial Advice (FoFA) laws, the effects of which are still very much being felt and being built on today. But beyond the resulting black-letter law, the so-called Ripoll Report started something far more potent and valuable: a shift in the culture of financial planning.
More recent changes set out by the Financial System Inquiry (FSI) and the Parliamentary Joint Committee inquiry into proposals to lift professional, ethical and educational standards in the financial services industry continue the momentum created by Ripoll.
Great explorers in history
“The great explorers in history set off into the unknown thinking the earth was flat and they would fall off the edge of the earth, and yet they went, because they wanted to see,” Ripoll says.
“We didn’t know what the outcomes would be; that’s why we had an inquiry – and setting off into the yonder and not knowing really is the best way to discover things.
“So we took that risk. Not everything should be already predetermined.”
Developing FoFA changes to their final form – which the current government now says is “settled” – took time, but it didn’t take as long as shifting the culture in financial planning. There was persistent resistance to FoFA reforms, and in some pockets of the industry there still is.
“It’s clear that … we had to do something that was system-wide, that was long-lasting, that would bring about cultural change, which is the hardest thing to shift, and which is where it really matters,” Ripoll says.
“It had to be a cultural shift. There were a lot of debates at the time that Storm and others weren’t necessarily breaching any laws or regulations. So we needed to improve the laws and regulations, but we also needed to shift the culture to match.
“It’s not just exercise of black-letter law; there were moral and ethical standards, [a belief] that advisers were professional people who had the best interests of their clients in mind, and were working towards not just flogging a product. During the whole inquiry there was this really big tension between product sales versus financial advice.”
Resolving tensions between product and advice
Resolving some of that tension – life insurance reforms were carved out at the time – was a key element of the reforms and of proposed reforms that have followed. And separating product from advice is also fundamental to creating a financial planning profession – an objective that Ripoll says the PJC had in mind at the time.
“There was always the view that this was part of it becoming a profession,” he says.
“People called it an industry, a sector, all sorts of different names. It’s definitely not a profession yet, but it will be. And the FSI having recommended now that all financial advisers need to have a degree means it will be a profession. That’s great news I’m excited about that – for the first time, this is really, really good news that we’ve almost got a timeline when we know when it will become a profession.
“And with it comes all the advantages of a profession: trust and confidence; better regulation; and also other opportunities around what that means.
“I think just the culture around a profession is better as well. You’re respected. I’m not sure that’s the case today. But in the future it will be. But the sector and the profession of the future needs to build that up.”
Ripoll says cultural change is inevitably slow, and “it has to be”.
“But it has happened,” he says.
“I have no doubt in my mind that the cultural shift has been absolutely across the sector. I regularly talk to individual advisers and people who are in the sector, and they say to me that there has been a shift. Their thinking is different. They have now been exposed to enough of the bad stories of what others have done, and I think, too, what has happened is the cultural shift has been from the bottom up and the top down.
“Principals of organisations are requiring a high standard, they want to ensure they are doing the right thing by consumers. They’ve also understood there’s a lot more research and evidence out there that people want value for money and that financial advice was too expensive and we’ve got to bring it down, that there’s a low take-up rate – 23 per cent, 24 per cent, whatever it is – and so there has been
a shift to adding value.”
Not all covered in glory equally
In developing the FoFA strategy, Ripoll experienced for the first time sustained and deep contact with some of the organisations that represent financial planners and the organisations that employ or authorise them. Not all covered themselves in glory equally.
“There was a lot of resistance from different organisations, from different parts of the sector where they were acknowledging on one hand the problems and issues, but resisting the change, on the other,” he says.
“[They were saying] if you do this, it’s going to cost our business this much; if you do this, it’s the end of the sector – there will be massive job losses; and it’s the end of the world.
“I don’t want to over-exaggerate, but that’s the kind of thing I was getting regularly. I was consulting very widely. I made it clear my door
was open, and that I would see and hear and listen to everybody, as many times as they required.
“We had to take this sector to the next level or else what would happen, in my view, if it was left untouched and left to keep going, it would just collapse under its own weight. Trust would go, less and less people would seek professional financial advice, it [would remain] too costly. There would be too many problems.”
The pressure that well-funded and well-organised opposition brings to bear on the legislative process can be immense. Ripoll says the inquiry’s terms of reference provided the PJC with sound guidance through the process.
“What all organisations do, it depends on what resources they want to throw at something, and in this case they threw a lot of resources,” Ripoll says.
“Personally, I don’t look negatively at that pressure in different regards, because it’s part of the debate that you have and it’s good, too, because it helps you to work your way through potentially unintended consequences. You won’t ever get them all, but it’s a way of working through some of those and getting it right in the first place.”
A contest of ideas, a battle of wills
It’s not only a contest of the best ideas, Ripoll says, “but it’s also of will”.
“People will always fight for what they believe in and their own position, unless something else happens and changes that,” he says.
“The first catalyst for change – the first big, serious one – was Storm Financial, because it was so large. Their client base was enormous: 14,500 clients; we’re talking about billions of dollars; this was a serious event. It meant there must be action from here. You can’t sit here and watch that happen and not respond.”
But after years of prosecuting the case for reform, and after the election of the Abbott government in September 2013, Ripoll found himself having to mount a defence from the opposition benches.
He says that “all the significant reforms of FoFA” were under threat.
“Not everything, but all the ones that counted,” he says.
“We said no.
“We stood firm and the government didn’t quite expect to get as much resistance as it did.
“It [relied on] having such large numbers in the house, and [thought that] the Senate would just either not understand or capitulate; and their own internal problems caused them a lot of issues – [former Assistant Treasurer] Arthur Sinodinos – and eventually, my interpretation is that after 12 months of them pushing a particular agenda that was going absolutely nowhere, in they end they just went, ‘We give up’. That’s my way of describing it rudimentarily, but they just gave up and said we’re too far down the track now.
“And interestingly, now with what we’ve seen as the response to the FSI, they are going even further than what we put in place – much further – in a whole range of areas now, which I find curious. Good, and curious.”
‘I made a contribution’
Ripoll says that when the time comes for him to leave the parliament – at the next federal election, whenever that may be – he would
like to be remembered simply for having made a contribution.
“I’ve thought about this, how I want to be remembered – with my party, with the Caucus, with my community – and in the end, in a way
it doesn’t really matter because people will have their own views,” he says.
“Some will say, ‘Great job!’ Others will say I was a complete arsehole. It doesn’t matter, as long as they say I made a contribution [and] that I did care.
“I felt really genuine about it. I did it genuinely. And therefore you get to the end and you go, yes, I’m happy with what I did. Hindsight is a beautiful thing, in the sense that you can look back and say, yes, that was all right. You could always have done a little bit better. But sometimes it’s good not to know.
“Naïvety is a special quality to have. We all have it. Those who never admit it have got something wrong with them, but being naïve is sometimes really good, because if you knew how hard something was going to be, you may not embark on the trip. If you knew how complex [it would be] and how much heartache you’d have on the way, you might just take a slightly easier course.
“But not knowing that, you embark head-on into the winds and the waves and you set sail, in a way. You say, let’s see what we find. It’s like being a bit of an explorer. Let’s see what we find.”