There is strong political will for legislators to come down hard on the financial planning and wealth management industry, Bernie Ripoll, former Labor MP and architect of the Future of Financial Advice (FoFA) reforms, said.
“This will be a product of the sector’s own making,” Ripoll told Professional Planner. “The opportunity to self-regulate and make the best of reform has passed. Now it will be forced.”
The warning, from the man responsible for ushering in the most significant legislative reforms the industry has seen to date, comes on the heels of a speech by former Commonwealth Bank chief executive and incoming AMP chairman David Murray, who has tried to dampen political will to legislate the beleaguered industry.
At an American Chamber of Commerce in Australia lunch on Wednesday, Murray, who took his post on Thursday at AMP, the biggest target during the earlier sessions of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, said legislation targeting vertically integrated business models would risk removing a significant source of support for financial advice.
“Substantial consumer benefits can be derived from vertically integrated business models as a result of their scale and access to capital,” Murray told the audience, which included business executives and public policy professionals.
“They [vertically integrated institutions] have resources that can fund the investments needed to support large-scale product and advice platforms, can support systematic and comprehensive customer remediation in the event of misconduct, and can develop compliance systems that will evolve with regulation,” Murray outlined.
Murray’s support for the preservation of vertical integration, however, could be out of step with the political climate in Canberra, Ripoll reckons.
Conflicted remuneration and separation of product and advice are issues at the top of regulators’ lists at a time when there is strong political will for a crackdown on behaviour in the financial services sector, Ripoll commented.
“Anyone who knows politics knows there is never a balance, it’s a pendulum that swings,” Ripoll observed. “We are in an environment now where both major parties have everything to gain coming down hard on the financial services sector.”
He reflected on his time as the Parliamentary Secretary to the Treasurer, shadow minister for financial services and chair of the enquiry that led to the development of the FoFA legislation, saying it’s possible the legislation didn’t go hard enough to stamp out conflicted payment and business models.
The 2012 Future of Financial Advice reforms informed the Financial Services Inquiry in 2014, which made significant recommendations regarding the provision of financial advice.
Ripoll, now a director of consultancy SAS Group, said he expected government to move quickly to regulate the industry, possibly even before the final recommendations from the royal commission, which are expected in February.
Ripoll pointed to Minister for Revenue and Financial Services Kelly O’Dwyer’s plan to cap fees on low-balance super accounts at 3 per cent of an account’s total value as an example of politicians moving early to curb behaviour.
“The race is on,” he said. “I think there will be an election earlier than a lot of people think and the government will probably want to move ahead of time.”
Ripoll highlighted the decision by BT Financial Group this week to abolish grandfathered commissions on its products as the direction those looking to get ahead of the curve would be heading.
“Everyone is sick of misconduct,” he said. “FoFA has delivered as much as it could have. We are now realising it [FoFA] didn’t go far enough… I think we are seeing a perfect storm for politicians to come down hard on the industry.”
