The Royal Commission has lifted the corporate veil

If the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has achieved nothing else, it has pulled back the veil on senior executive corporate behaviours and how they adversely impact on the reputation of the financial planning industry.

What was revealed to the Royal Commission via the appearances of AMP Limited and the Commonwealth Bank earlier this month was that, very often, the disadvantage suffered by clients was not the work of their financial planners but, rather, the product of company policies driven by a desire to protect their balance sheets.

That AMP Limited appears to have had a policy of continuing to extract fees from orphan clients for up to three months is unconscionable but it is something which was beyond the power of individual advisers to influence.

Similarly, individual financial planners cannot be held responsible for the approach to breach reporting adopted by Commonwealth Financial Planning and Count Financial with respect to orphan clients.

Much of what was disclosed at the Royal Commission had been covered off by the Australian Securities and Investments Commission’s “Fee for no service” report but the disclosures with respect to AMP appear to go much further and suggest that the regulator was not entirely aware of the degree to which a breach was not the result of a mistake but, rather, a result of the deliberate execution of company policy.

One of the questions which arises from what has been heard during the Royal Commission is whether the financial planning industry needs to be not only professionalised but also restructured to remove compliance with client best interests from the exingencies of corporate balance sheets.

Core to this outcome is ensuring that it is professional financial planners who fully own the client relationship – something which would help overcome the issue of clients whose relationship with their bank or AMP-employed planner is so vague and tenuous that they do not even know when they have become “orphaned”.

Sadly, while most Australians would be fully aware of the name of their medical general practitioner or even their accountant, the nature of their relationship with advisers employed by the likes of AMP or the Commonwealth Bank is far more tenuous. This is not so much the case where the clients of smaller financial planning practices are concerned.

A number of the major banks have been lowering their exposure to the wealth management industry and this month’s events in the Royal Commission suggest it would be desirable if this trend were to continue, particularly where there exists a conflict between the implementation of corporate strategies and client best interests.

Perhaps the way ahead is the further pursuit of professionalism via the structures being created by the Financial Adviser Standards and Ethics Authority, code monitoring bodies and a higher degree of self-licensing.

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Hi Mike. Whether the Royal Commission was called at the right time or not is not as important as the fact that it has now been called and a bright light is shining on the industry. The prime minister can take credit for that. At the same time it is important that we discuss the major big picture items like:

- how is longevity risk of retirees funds assessed in the industry
-the changing nature of employment with the future of work and its impact on the industry
-who sets the industry standards for users of the CFP trademark. Is it an Australian regulator?
- are industry commentators right about mortgages needing to be financial products? (
- is the biggest over 50's retirement association with 38 million members right with their policy of changing longevity risk with retiring part time?

Keep up the good work Mike you are doing a great service for Australia. Thank you.


John Cosstick

The financial planning industry has always been a solution looking for a problem.An industry, in part, created as an escape route for large insurance companies whose reputations were severely battered in the early nineties.( Yes, folks, back then there were also senate inquiries, but this time into the insurance industry and also prompted by TV current affairs show outrage.) So a strategic exodus was conceived out of one sullied profession, insurance sales, into a shiny new, financial planner designation. Within this framework, vesting periods, 21F super funds and two-year premium commissions could thrive under a veil of perceived professionalism. What customer could ever doubt the value of the euphemistically named " savings plan' when advised to do so by such an 'expert' as a financial planner. (paperwork, compliance and government regulation at the time - NIL)

But like any new industry, it attracts competition. And our banks were keen to jump into the rivers of revenue made possible by compulsory super. But it was not until late 90's that they all gave up on organic growth and decided to buy into the 'party' and scale up. The industry consequently exploded, with jobs aplenty allowing all those self-employed 'financial adviser's( nee salespeople}, to suddenly broaden their employment horizon's within the banking environment. And be paid a regular salary!

And so the seeds were planted to create the corporatised behemoth that passes as the advice industry today. An industry that has in effect, been able to create and sell their version of "bottled water'. A generic, extraordinarily limited service, presented with all the packaging and hullabaloo of professionalism but just plainly isn't. An industry whose core document is an SOA rather than a financial plan and has elevated the word 'disclaimer' into no. 1 within the industry lexicon.

And any executive within this industry who has been involved in it for longer than a few years will be completely conversant with the failings being shown at the current Royal Commission. But would have had absolutely no reason to change it, as the money was far too good. It is only when the public is astounded and shocked by the behaviors, do they suddenly sing a different song, albeit unconvincingly. Such as one executive whose profuse apology formed part of his written statement, and was asked, 'what exactly are you apologising for?' His response, " I'm unsure". And my personal favourite, when an executive was asked by counsel if they described themselves as a salesperson, and was quick to indignantly responded "no". Only to be informed by counsel, that this was how he had described himself, on his LinkedIn profile. oops!

In my, opinion the sooner financial planning evolves into a small business, owner operated the better for all concerned.

Mike, whilst I agree with you broader message: you’ve seemed to conveniently overlooked the fact that some of the cases at the RC where indeed involving advisers licensed with Count, M3 and others ie licensed through AFSL’s owned by CBA and ANZ. As you’d be aware these FP practices are self employed and run their own businesses. They are not employed by these banks. Some in fact offer accounting services. The main issue here if what constitutes ‘Ongoing Service’ and how advisers will be able to validate charging for this whilst managing the potential large client bases. Quite simply, advisers can’t (or able to) service all their clients. The days of ongoing royalty style adviser fees are surely numbered. If advisers managed smaller, but higher quality based relationships then we wouldn’t be here. The gravy train is over. The role of the AFSL here is under the microscope, and the intertwined product/adviser conflicts with APL’s is also warping advice.

Good points made.

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