“Most advisers are doing the right thing by their clients” is a common refrain among participants in financial services looking for a silver lining at a time when reputations are under attack, but this phrase is handicapping financial advice from progressing, an expert has warned.
“Well where are they?” asks Pamela Hanrahan, deputy head of UNSW’s School of Taxation and Business, speaking at the Financial Services Council Summit, on a panel titled, “Financial advice and the way forward”.
“They’re not turning up in the ASIC inquiries,” Hanrahan, who was previously ASIC’s Queensland regional commissioner, noted. “ASIC is finding there is regularly non-compliance among advisers.”
In the financial year just ended, ASIC’s enforcement outcomes included 21 criminal convictions, 27 civil proceedings completed, and 27 court-enforceable undertakings. During this time, the regulator obtained almost $350 million in compensation for customers, banned 127 financial advisers or credit providers, and disqualified 49 directors, ASIC numbers show.
“Why is it we always start a policy discussion with, ‘Well, most financial advisers are good?” Hanrahan commented.
The “most advisers doing the right thing” refrain is a reflection of the propensity for investment firms to back self-interest over client best interests, she said, in a lively discussion among the panellists, which included BT Financial Group general manager Michael Wright and Quantum Financial’s Claire Mackay. Conexus Financial chief executive Colin Tate chaired the panel.
Hanrahan’s experience during the shaping of legislation relating to defining client best-interests during the Future of Financial Advice reforms has left her with concerns about whether the industry can leave its self-interest at the door should the Hayne royal commission findings result in a new round of policy reforms.
“Participating in a constructive way [that isn’t self-interested] to get better quality regulation is in everyone’s interest,” she said. “The question is how do we trust the industry won’t hijack it.”
Individual licensing, the panellists agreed, would be a step in the right direction toward providing a way forward for the regulation of advice in the future.
“Fundamentally, what a dual licensing system does is put more accountability into the system, particularly on advisers,” BT’s Wright said. “This is a move that makes a lot of sense and it would [be a way for] the industry to help the regulator.”
Quantum’s Mackay, said: “Other professions use an individual licence [framework], whereas in financial planning, your allegiance is to your employer. If we had a blank page with no legacy issues, I think consumers would say, ‘Why wouldn’t you do that?’ ”
Most of the shortcomings of the FoFA reforms, which failed to end grandfathered conflicted remuneration, related to the actions of a self-interested industry, rather than policy intention, Hanrahan said.
One thing politicians and the industry needed to be prepared to do following the royal commission recommendations was repeal some of the legislation that was conceived in this environment of self-interest, she argued.
There will be an appetite for change but the most difficult thing for politicians to do will be to reduce the amount of nonsense, counterproductive regulation we have at the moment,” Hanrahan said. “Structural change is difficult, so it’s naïve to imagine you don’t have to think about law reform in a way that will lead to quality outcomes.”
