Over the last seven or eight years, there have been literally dozens and dozens of inquiries, reports and other probes, both direct and indirect, into financial planning. They have resulted in an unprecedented wave of regulatory reform for financial planners that will continue for years and has already created an immense amount of work and cost as advisers and licensees have scrambled to comply. Whether the result will be better advice for more Australians remains unknown.
So is it conceivable that another inquiry – a royal commission, no less – could do anything to address shortcomings and raise standards across the industry that hasn’t already been done? The short answer is yes.
We’ve had the Future of Financial Advice (FoFA) reforms, and now we’re moving through the development of new and higher education, professional and ethical standards for advisers. The Life Insurance Framework (LIF) has been developed and is being implemented. All of these measures, and more, are designed to improve the integrity of the financial planning industry, ensure its practitioners act in the best interests of clients, and raise public trust and confidence in advisers and their work.
Yet, reports from the Australian Securities and Investments Commission continue to highlight malpractice among some of the largest providers of advice in the country. Report 515 found instances where institutions have little or no control over the actions of their advisers, whether that’s deliberate or through incompetence is a moot point; and report 499 highlighted the ‘fee for no service’ issue, where customers were being charged for services that the banks did not provide – and that’s just two examples. Professional Planner has said before that the banks are damned when they do provide advice, because it’s too often substandard, and damned when they don’t, because they continue to charge for it anyway.
It seems that something has not got through to them, as if the point of the regulatory reform and inquiries and reports has eluded them. Now we have the reality of a royal commission inquiry, which is expected to take 12 months to conduct its business and report in February 2019. As the leader of the opposition, Bill Shorten, told Professional Planner earlier this year, a royal commission inquiry is necessary because “we’ve tried everything else, haven’t we?
Another go at the advice industry?
The Royal Commission into Banking, Financial Services and Superannuation will be far more wide ranging than just another look into the financial advice that banks provide to customers. The advice sector arguably has been raked over enough and there are plenty of issues this inquiry could usefully address without turning over the advice industry yet again. But the industry can’t be immune from further scrutiny, and it’s to be hoped that progress made to date, whether imposed by legislation or generated by the industry itself, is given due acknowledgement.
The royal commission inquiry’s draft terms of reference include licensees and authorised representatives among what’s defined as a “financial services entity”. The commission will inquire into “any conduct, practices, behaviour or business activity by a financial services entity (including by its directors, officers or employees, or anyone acting on its behalf)”
And it will examine “any conduct, practices, behaviour or business activity by a financial services entity that falls below community standards and expectations”.
It will determine whether anything it finds in the areas above are due to “the particular culture and governance practices of a financial services entity or broader cultural or governance practices in the relevant subsection” of the industry.
And it will look at whether any of the issues relate to “other practices, including risk management, recruitment and remuneration practices”.
Clearly, financial planning could be examined, again, in any or all of these contexts. But the commission does not have to do anything that might “prejudice, compromise or duplicate…another inquiry or investigation; or a criminal or civil proceeding”, and it’s not clear at this stage if that applies to inquiries already completed.
The best potential outcomes
A royal commission inquiry could be viewed as a last-ditch attempt to make banks sit up and take notice of the community’s concerns and growing mistrust, and as an attempt to ram home the point that it doesn’t matter how big or how economically significant they are, nor how dependent we are on them, from our very first savings accounts as children to our first homes and then to our income in retirement; they are not above the law. In fact, those are the very reasons they cannot be above the law.
A royal commission inquiry could just as easily be viewed, however, simply as a mechanism to allow individuals who perceive themselves as victims of banks’ poor practices to vent, air their grievances and have a chance to be heard.
Both of those outcomes would have some value; however, on Thursday, there were concerns expressed that groups representing victims of bank malpractice were not consulted on the terms of reference, and that their opportunities to be heard publicly might be restricted or denied.
The real value of the royal commission might be that it could finally hit at an institutional mindset that needs a jolt to get it to shift. Nationals’ parliamentary leader Nigel Scullion said the commission “will put an end to the uncertainty and doubts about the misconduct of our banking and financial services industries once and for all”. That would be good, if it turned out to be true.
The inquiry was “regrettable but necessary”, Prime Minister Malcolm Turnbull said. It should also have been avoidable. The banks assure us that they will “co-operate fully with the royal commission”. But they can do nothing else; they have no choice but to comply. Just like they cannot choose to comply or not with financial planning laws and regulations. Isn’t the ‘optional compliance’ mindset what got them here in the first place?