As an industry, financial advice is a good position. Profit margins are strong and the money flowing into the compulsory retirement system has rewarded the 15,500 odd advisers who remained after the fall out of the Hayne royal commission and introduction of professional and education standards.
The royal commission highlighted flaws in the industry – mostly institutionally driven – and hurt consumer confidence in a sector which had at least begun to rebound in the past few years, as data from CoreData Research presented at the recent Professional Planner Licensee Summit showed.
But once again, the profession is at a crossroads as another scandal will make the public question whether they can trust financial advisers.
ASIC took action against Shield and First Guardian over conflicts of interest and for misleading investors, and that lead generators were aggressively pursuing consumers and handing them to advisers who would put them in high-risk products against their best interests.
The Shield and First Guardian failures have led to an estimated $1 billion in client losses, and because of the involvement of registered financial advisers, claims that AFCA determines in a client’s favour will head to the Compensation Scheme of Last Resort.
Not all of the $1 billion will be paid out by the CSLR. Individual claims are capped at $150,000 and not all complaints are guaranteed to go through. But with compensation projected to obliterate the subsector cap, the financial advice profession will pay.
The outcomes of Treasury’s review into the CSLR are imminent, and it is to be hoped the funding model will be reviewed. It is unfair that advisers who have nothing to do with the incident will have to pay compensation.
So-called ‘but for’ determinations that don’t result in a capital loss are expected to be exempted from the scheme – the CSLR estimates this makes up around 80 per cent of claims – making the scheme truly a last resort as intended.
But even without the CSLR, advisers would still be paying a price.
The introduction of professional standards and the separation of product and advice was meant to usher in a new age of professionalism. Advisers were now gatekeepers – providers of professional services, not the distributors of product. They – along with licensees and researchers – were meant to ensure clients were put into portfolios that offered diversification against risk.
Advocates for the profession will rightly point out the advisers enmeshed in Shield and Guardian were the exception, and that the profession is now largely clean. But this distinction is meaningless to the people who are looking at an empty superannuation account.
For consumers who were already sitting on the fence about seeking advice, this will only make it less attractive to do so. Why take the risk, even if 99.9 per cent of the profession is clean?
The advisers responsible for the alleged misconduct were still registered on the ASIC Financial Advisers Register, and the safeguards meant to be in place didn’t stop them. Any Australian looking for advice could’ve found these advisers on ASIC’s Moneysmart website.
I talk to advisers daily and have frequent access to the best in the country, and what I love about covering financial advice is how genuinely passionate advisers are about the personalised service they give clients in a way the institutions can’t. But for the average punter who’s unfamiliar with the industry, there’s no way of knowing which advisers are genuine about this.
This is the level of confusion clients in the failed schemes are dealing with. With many of them having been misled – not knowing they were even invested in Shield or First Guardian – they’re wondering why the regulators didn’t step in sooner and why they haven’t heard from the responsible minister. From their perspective, they – and thousands of others – have just lost their entire retirement savings, and it has not even rated a mention from the government.
As Parliament opens this week, and with half of the second tranche of the Delivering Better Financial Outcomes draft legislation yet to be delivered, Minister for Financial Services Daniel Mulino is going to face to more public interest in advice from mainstream media outlets drawn to cover the sector by the Shield and First Guardian scandals.
The Shield and Guardian collapses – like others before them, and those yet to come – are deeply unfair on the professionals who weathered the worst of regulatory reform, lifted their game in-line with the higher standards and have done right by their clients. But they will still be guilty by association.
Platforms and research houses are also rightly being scrutinised, and in come cases investigated, but advisers are once again taking the lion’s share of the negative press.
Deregulating financial advice in the midst of the biggest product scandal since Storm Financial suddenly looks politically untenable. The general public is going to be wondering why anyone is even thinking about dialling back disclosure requirements while there’s $1 billion of investor losses to be dealt with.
These failures highlight a deeply frustrating reality for the financial advice profession.
Despite the avalanche of regulatory reforms imposed over the past decade, each introduced with the stated intent of protecting consumers and lifting professional standards, we continue to see high-profile failures that leave clients financially and emotionally exposed. And who bears the cost of these failures? Advisers.
Well-intentioned advisers, who already operate under some of the most burdensome compliance frameworks in any profession, are now being saddled with the financial fallout of misconduct they had no part in. It is yet another reminder that while regulation has significantly increased the cost of providing advice, and in doing so made it less accessible to everyday Australians, it has been largely ineffective in preventing the very failures it was meant to address.
The overwhelming majority of advisers do the right thing every day. They act in their clients’ best interests, navigate a minefield of compliance obligations, and wear the rising cost of professional indemnity insurance, the ASIC Industry Funding Levy, and now compensation levies. And yet, these systemic failures persist, undermining public trust and punishing the wrong people.
Real consumer protection does not come from more red tape. It comes from better enforcement, smarter oversight, and a regulatory approach that distinguishes between those who uphold the profession and those who undermine it.