November, 2020

Terrific article Robert, thankyou (“Time to embrace Code of Ethics and get on with it“, November 13).

The sad reality is that for many of us, we only retain the financial planning industry association membership “just in case it is needed” as in the ticket to the Code Monitoring Authority. It has never represented value for money and neither has the Accounting professional body membership. You are very right to say, we need to take the challenge individually however, that requires organisation. Genuine member focused organisation

Kym Bailey, EQ Wealth in Sydney, NSW


Robert Brown has again hit the nail on the head about ethics and professionalism in the financial planning industry (“Time to embrace Code of Ethics and get on with it“, November 13).

I was however a little uncertain about the link between the accounting profession adopting a non conflicted option in 2013 and how that would have changed the whole profession. If the CAs had adopted those standards in 2013 the accountants practicing in financial planning would have had a leg up in terms of their own behaviours over their counterparts in other parts of the industry. At the end of the day the institutional players ( banks, AMP etc.) had a lot of influence in the industry and promoted the fee for no service practices as a means of making easy money. The path we are now on would have likely happened anyway. What always surprised me was that the role of monitoring the FASEA code of ethics was left to the dealer groups to educate and enforce the code. I thought this was a major backward step.

Leaving some of the main players in the fee for no service strategy to enforce the attributes of professionalism, ethics and removal of conflicts was a bit like leaving the keys of the asylum to the inmates. As these players are being slowly weeded out there is hope for the profession to emerge as a strong and ethical one and assist the community with the financial help that they all need.

Tony Simmons


Beautiful construct of facts (“Time to embrace Code of Ethics and get on with it“, November 13).

I recently ran for FPA Board for the exact reasons outlined in your article (to stop tolerating the bullshit pushback on cleaning up a sector that has ‘run its own race’ for too long). It’s not rocket science to be (not act &/or talk) professionally however it will mean missing out on money (the real driver of grubby behaviour) along the way.

Lance Meikle, Genmfo in Pymple, Sydney


Robert, you continue with your rhetoric about the findings of the Royal Commission and the lack of fortitude by, it seems, everyone with the exception of a golden few (“Time to embrace Code of Ethics and get on with it“, November 13).

You are wrong on so many fronts and have been wrong from the very first comments you have made in areas you have little knowledge in. You have articulated that there were and still are issues, however your idolisation of a Royal Commission that was based on data that focused only on the bad and did not recognise the many good aspects, yet wanted to throw the entire Industry under the bus, shows you have blinkers on. Your idealism, borders on a Utopian ideal that works in your mind, though sadly, does not hit the mark in the REAL world. Everyone has the right to their opinion, though if you are picked up on areas that you are clearly ill-informed on, yet continue to promote, it shows the same arrogance that the Industry had to live with, with the Big end of town, when they refused to listen to reason and kept pushing their agenda, which nearly pushed us all of a cliff.

May I suggest you take off your rose coloured glasses and in the future, when you make comments, bring them back to a relevance within a sector, rather than your broad brush attack on everyone, who you seem to think are either conflicted or not. The world is much more complicated than your comments past and present, so next time, let us see a more realistic attempt, rather than what we have read to date, which has thrown up many contradictions and very few realistic, commercial realities.

Jeremy Wright, KPRM in Bonnet Bay, Sydney


Thanks Robert, strongly support your position (“Time to embrace Code of Ethics and get on with it“, November 13).

At a time when more and more retirees need truly independent and unconflicted advice it is amazingly disappointing that they cannot obtain it without huge effort and that the professional body does not have the guts to enforce their own Code. They could be in a position where consumer organisations would promote their members to one and all. Instead we re forced to warn against this.

Years ago the Accountants had the same opportunity which they briefly embraced and we supported, then self interest led to a reversal and we had to do as we do now warn our members and all older Australians against them. Sad all round and invites further government intervention between now and the next election, which I believe SCOMO is up to.

Ian Yates, COTA in South Australia


This is an obvious move and if implemented properly, is a great idea (“ASIC’s adviser reference check protocol put to industry”, November 19).

However, based on the maze of complexity and differing interpretation of how to administer Best Interest Duty and the 7 Safe Harbour steps, this could end up as another good idea gone wrong. There are many reasons why an adviser would move from their current License and being a bad egg probably counts for a very small percentage of advisers.

If history is anything to go by, ASIC need to stop and listen to advisers before they try and push through an agenda without proper and fair protocols that allow advisers to be given a green light to move quickly and efficiently, unless there is a clear case of clients having been negatively impacted. What occurs today, is a mish mash of interpretation that focuses on, in many cases, irrelevant opinions

Jeremy Wright, KPRM in Bonnet Bay, Sydney


One idea I think has legs that is certainly worth debating (“Outdated sophisticated investor rules increase ASIC’s load“, November 25), noting there must be exemptions to ensure valid (not LIC and ETF) capital raisings for companies do not get stuffed up:

• No $500k product exemptions (as anyone can sell a home and be hounded to put some of the proceeds in an investment)

• All people who give financial advice to any SMSF, super fund member, private individual, private company (non-AFSL holder, non APRA regulated, non listed etc) or registered charity must meet the FASEA educational, CPD and Code of Ethics requirements. From my experience with charities they also need protection and it is scandalous they are not treated as retail. Their boards often are quite unsophisticated and get sold bad product (think back to the CDO crisis and the GFC)

• BUT the Government could introduce new legislation/a simple section could be along the lines that if those FASEA bound advisers can confirm that the client they are dealing with and advise is sophisticated in the true sense (not just rich/windfall/high income), those clients can opt out of SOA’s, FSG’s, OSA, FDS etc etc and can invest in “wholesale only” products. Noting of course that the adviser will still be bound by the FASEA code, know your product, ensure the client understands etc – that is for the benefit of the whole sector, the reputation of the industry and confidence in the system.

This also will expand the number of advisers who can do pro bono work, expand the number of people capable of giving financial advice to “normal” Australians. This is actually not in my interests as it slows the rapid fall in the number of my competitors….but it is the right thing to do.

If we don’t do this there will be more scandals (ie rich widows, naïve high income professional etc), and the industry will suffer. That some businesses may need extra time to adapt? Fine, do (a) immediately and give time for the definitions to change to allow “wholesale only” business to adapt to (b). Also perhaps retain the idea of a professional investor but with a much higher limit (which would thus also allow very large charities to engage direct with the insto market if they felt capable) would knock the legs out of any argument that it is unreasonable to do this for true professional investors.

Steven Christie, Portum Private Wealth in Sydney, NSW


Thank you for calling out the regulator on why they have come after Mayfair 101 (“Outdated sophisticated investor rules increase ASIC’s load“, November 25).

It’s plain as day that they don’t like their own laws, and would rather pick a scapegoat for change. It’s a completely unsophisticated approach to law reform and policing the industry. Our investors have been the roadkill on ASIC’s warpath to change the laws by picking us as a high profile case. Taxpayers should be infuriated at the millions they have no doubt spent to target our group, and all they have done is place at risk millions of dollars of hard-earned money from self-funded retirees. These people cannot afford to lose their money. If ASIC had written to us, just like they did many other investment managers, and asked us to change our ads, we would have done so.

In terms of wholesale investor laws, I have two constructive suggestions: 1. Change the word “sophisticated” to “qualified”. The word “sophisticated” has a literal meaning, which too many people are caught up on. All our investors in Mayfair Platinum and IPO Wealth were “qualified” investors. We have been punished by ASIC for the literal meaning of the word, not the legal meaning. Simply changing this alone will change much of the industry commentary on the subject. 2. I am an advocate for the $500k threshold dropping to say $50-100k. Why? Because investors otherwise will try and round up $500k to invest, when for many it is their life savings or close to it. By reducing the amount, investors will be encouraged to diversify more. If someone loses $50k and it’s their life savings, well they need to get back out to work, or better they invest in a retail product. Otherwise, the rich will continue to get richer, and our population will be starved of opportunities to a) get ahead, and b) experience the ups and downs of investing. We are otherwise breeding a society full of unsophisticated, experience-less, investors. A lower entry point will help our society develop better investing skills and losses will be less catastrophic for those that only just scrape in to the $500k threshold currently.

James Mawhinney, Mayfair 101 in QLD

September, 2020

For an alternative view on the joys of investing in private equity, I suggest that the reader looks at the work of Professor Ludovic Phalippou (“New portfolio construction rules are in play“, September 1).

To put it mildly, Professor Phalippou suggests that it is the private equity managers who are the only real beneficiaries of his form of investing. Quite appropriately, his recent article is titled: “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory.” Its abstract says it all: “Private Equity (PE) funds have returned about the same as public equity indices since at least 2006. Large public pension funds have received a net Multiple of Money (MoM) that sits within a narrow 1.51 to 1.54 range. The big four PE firms have also delivered estimated net MoMs within a narrow 1.54 to 1.67 range. Three large datasets show average net MoMs across all PE funds at 1.55, 1.57 and 1.63. These net MoMs imply an 11% p.a. return, which matches relevant public equity indices; a result confirmed by PME calculations. Yet, the estimated total performance fee (Carry) collected by these PE funds is estimated to be $230 billion, most of which goes to a relatively small number of individuals. If all vintage years are included to 2015, Carry collected is $370 billion, with a performance similar to that of small cap indices, but higher than that of large cap stock indices.

The number of PE multibillionaires rose from 3 in 2005 to 22 in 2020. Rebuttals from the big four and the main industry lobby body are provided and discussed.

Professor Ron Bird, University of Technology in NSW


Accepting your arguments, and accepting that the industry needs structural change, from a practical perspective, what needs to change first for the industry to accept a new reality and move to the promised land (“Remember that thing called a code of ethics?” September 1)?

Why does the industry persist with costly and complex compliance structures? Governance, compliance and professional standards are tools to manage risk (real and perceived) from government, the regulators, AFCA, PI insurers and bottom-feeding ambulance-chasing lawyers (there’s a great example of a profession). Licensees and their compliance teams are part of a regulatory-driven ecosystem that has created and maintained these dependencies for many decades as a reaction to the litigious world we operate in. What do you think needs to be introduced or removed from that ecosystem to effect change?

I love science fiction so I’ll channel Frank Herbert and include a quote; “Key log: a truly ancient concept from the days when lumbermen sent their fallen timber rushing down rivers to central mill sites. Sometimes the logs jammed up in the river and an expert was brought in to find the one log, the key log, which would free the jam when removed.” (Herbert F., Heretics of Dune, 1984). Dependencies and key logs. Risk management and business sustainability. Insurance. Review and rethink costly and complex PI and EDR and the looming cost and complexity of a compensation scheme of last resort, allow access to a limited liability scheme as accountants are afforded and you will give confidence to an emerging profession that it can rethink risk management.

Craig Meldrm, Infocus in Melbourne, VIC


Great thought leadership Robert, thankyou (“Remember that thing called a code of ethics?” September 1). The financial planning industry is so entwined with the stifling compliance regime that, for too long, lawyers have overlaid and, as pointed out, the strong resistance to reform that has been an enduring feature promulgated by those prioritising self-interest over best interest.

The Code is a radical break through but its spirit needs to be embraced for it to truly unleash its power. It is an avenue to reclaiming control back from the compliance suffocation and empower advisers to use their professional judgement. The white noise around Standard 3 is another demonstration of the same old same old. Until it is widely understood, and accepted, that the Code is about behaviour, and black letter law checklist ticking can’t be applied, the much needed change (on the path to professionalism) will be hard trod.

Kym Bailey, JB Were in Sydney, NSW


It’s sad that this overreaching nanny-state regulation has created extremely self-interested behaviour where you do whatever you can to wash your hands of the blame, cost and inconvenience and handball the pain on to the next player (“Advice industry in much worse shape than it was in 2010: Cooper“, September 3).

Every stakeholder from the top down, shrugs their shoulders and apologises to the next schmuck in line. “I know it’s crazy but I”m just doing my job”, starting with PI insurers –> dealer groups / auditors –> advisers –> clients. Best Interest Duty is meant to protect the client but in reality it is about keeping your puppet master happy, always to the detriment of the client through over complication and increased costs.

Daniel Budreika, Planning for Prosperity in Fullarton, SA


I’m normally reluctant to comment on such articles but I can’t let this one go (“Advice industry in much worse shape than it was in 2010: Cooper“, September 3).

I’m always aghast when people from the big end of town make commentary about how rubbish the industry is, when they themselves were either directly involved or an architect of what led us to where we are now. It may be true that “If large and well-capitalised and very well-regulated banks can’t give effective advice to ordinary Australians because its seemingly too difficult, then who else can” but the problem was that these organisations did not provide advice – they sold product.

I think you will find there are many many many financial advisers running their own small businesses around the country who do provide effective advice to ordinary Australians. Advice that has changed their lives for the better because it was personal. Large institutions can’t do that because they are too far removed from the personal relationship and the people in charge of those institutions still only think in terms of products that can be sold – not a service.

Andrew Frith, Leenane Templeton in Newcastle, NSW


I don’t dispute millennials around the world are displaying an avid interest in the stockmarket (“Aussie millennials leading post-pandemic investment surge“, September 10).

But the survey must have had a skewed population of babyboomers if it claims 100% did not invest new money at the March lows. Over 10% of my babyboomer clients invested new funds in the Aldersley Capital Managed Equity portfolio (15.95% annual return over 5 years to Aug 31) on the Hub24 platform upon reading in my newsletter that I had gone long on March 23rd. I would have invested more by gearing, but my attempts to establish a bank facility foundered on being 67 years of age, despite offering unencumbered properties. Why are banks so anti lending to babyboomers for investment purposes?

My default risk is zero. Too late now. I’m already reset for a major tech correction.

John Aldersley, Aldersley Capital, Central Coast, NSW 


Once upon a time it was easier to provide advice to those with reduced capacity / desire to pay, it was called “commission” (“Advice demand doubles in 5 years“, September 17).

Life commissions are evil as we have discovered courtesy of messers Trowbridge and Hayne, so all of those clients who once were no worse off (than they are in a post Hayne world) for having an advised product are now not only dealing with higher premiums, reduced benefits and no access to even rudimentary risk advice now have to muddle along on their own, and hope for the best when dealing with second rate (definitions and price) insurance products offered via daytime TV ads. I wonder if a general insurance actuary and retired lawyer actually have even the slightest idea of what is ‘ was involved in the advice implementation process for life insurance.

It is the ultimate irony that “ambulance chasers” are advertising for clients to come forth with their claims , which in many cases wouldn’t require any input from a lawyer. The state we find ourselves in is not as a result of any (widespread) wrongdoing by advisers , we already know the excuse for the LIF review was a fit up, there was no systemic , widespread churning, and while there are always bad apples in many walks of life, Financial Services isn’t IMHO over represented. The issue there is the scale of some of these crooks. I am also unconvinced that the (increased) level of compliance will weed out crooks, it might have the reverse affect where decent , honest players figure it’s all too hard and walk away.

Graham Hutton, Hub Financial Advice in Cleveland, QLD


Aah – where to start! (“Regulatory reform but not as you know it“, September 22).

The principles based FASEA code has only just come into play, and needs to be given some time to work. It is at obvious odds with the prescriptive micro-management that ASIC employs in regulating the industry and that needs to be resolved in the immediate future. Is a three year+ ALRC review the best solution? As a professional planner at the coal-face drowning in futile, puerile, misguided regulation – I don’t think so. But it looks like we are going to have one, so I would suggest the following. Undertake a meaningful, informed, cost-benefit analysis for every change being proposed and make it available for scrutiny, and Engage with professionals at the coal-face to understand the likely outcomes before legislating or regulating. These two steps seem absent in ASIC’s regulation of the industry.

Professional planners are not holograms – we are a resource that ASIC has ignored for years with adverse consequences. And if we ever wanted a brilliant example of conflicted remuneration – here it is. Lawyers charging fees for years on something that needs urgent resolution.

David Smith, Frost Financial Planning in Sydney, NSW

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