The advice and research community should focus on being open and truthful about their business models, rather than trying to eliminate finite conflicts in areas such as fees according to Deen Sander, ethics and professionalism leader at Deloitte and former CEO of FASEA.

Speaking on a live session to open the Professional Planner Researcher Forum 2020, Sanders opened up about the ethical responsibility providers have to consumers and how that meshes with Standard 3 of FASEA’s code of ethics, which takes a hard line on conflicts.

While careful not to name FASEA or criticise his former employer, Sanders made it clear his personal ethical lens takes a more holistic approach than FASEA’s exhortation for advisers to not “advise, refer or act in any way” where a conflict exists.

Rather than picking at perceived conflicts around remuneration, he intimated, the focus should be on eliminating misleading service provision.

“I was never as concerned with the issue of fees or commissions or how they were paid as I was with the utter, utter untruth of many of the financial advice business models,” Sanders said.

“I believe it’s a far greater ethical failure to tell your clients you’re offering them a bespoke service, tailored uniquely to them and charging $60,000 for it, when it’s the same templated advice that you’re rolling out for every client,” he continued. “That to me is a much greater evil than whether you’re charging 2 per cent, 2.5 per cent.”

Once you’ve got an ethical business model in place and ethical considerations are embedded into business processes, Sanders said, the issue of payment dissolves.

“It disappears because that’s just a proxy people use to say ‘this is unethical, it smells fishy’,” he said.

Selling de-risking

The perspective Sanders takes with advisers also applies to the researchers and research houses who assess products and formulate APLs.

“When I think about ethics in terms of research houses my first question is always: ‘What is it that we’re selling?’ Are we selling objective knowledge about a particular product? Are we selling an objective assessment of a marketplace within a sector?”

These perspectives miss the mark if researchers take the same honesty lens that underpins ethical advice enterprise, he reckons.

“I personally don’t think that’s what’s being sold,” he said. “I personally think what’s being sold is the idea that we’re de-risking. We’re all playing a role as participants in that particular value chain and offering a role to de-risk the value chain. Or elements of it.”

There’s nothing wrong with acknowledging de-risking as a product or service, Sanders said. Indeed, if it’s being done well, it’s incredibly valuable – and courageous.

“That’s a pretty big call,” he said. “It’s pretty brave to think that you can de-risk a value chain as complex as the financial services sector.”

One thing the research community could do without, he believes, is a dependence on the notion of objectivity to sell itself.

“There is this sense that the role of research houses is to offer an opinion that is anchored into some kind of objective consideration,” he said. “It’s the minute we start to use words like ‘objective‘ that I begin to step away from the table, because the simple reality is there’s almost nothing that’s objective.”

The “scientific enlightenment” approach, he explained, where people cling to the notion of purely objective assessment, is rapidly becoming outdated. “In the context of complex systems like financial services it is too shallow an approach.”

2 comments on “Sanders: Fake advice models greater sin than fee conflicts”
  1. Avatar
    Jeremy Wright

    It is the fear of running foul of a complex regime of contradictions, that has led the Advice Industry into the mess it is in.

    Put 10 people in a room to digest and discuss how best to interpret the current maze and there will be 10 differing opinions.

    I have said it many times. The moment you allow the Legal fraternity to have influence in how to draft, draw up and interpret Regulatory requirements, the battle has already been lost.

    How many times do I have to repeat this and how many Billions of dollars has it cost the Government, all Industries and the entire Australian public, in lost revenues, lost opportunities and for many people, their futures, because of unworkable and unreadable Legal interpretation that only benefits Lawyers at all our expense.

    It is ironic that the very people who instigated and were responsible for the chaos today, are the same ones who are critical of the system.

    It is a classic case of the lunatics running the asylum.

  2. Avatar
    Christoph Schnelle

    Great comments by Deen Sander about homogenised advice models. One reason is the extreme focus on compliance. The more bespoke you are for each client, the more you have to spend time justifying your decision. If you use the exact model portfolios of your APL for everyone you have *far* less work than if you consider each client separately and give them a portfolio that is tailored for them.

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