Royal Commission - What Can Be Done To Help Advice?

With the spotlight of the royal commission being turned onto the financial advice sector since the start of last week, there have been examples of egregious conduct engaged in by both advisers and the institutions they represent. But with political point scoring and industry handwringing taking place the question remains: what action can be taken to clean up the industry and help rid it of the advisers and practices that are contributing to the demoralising perception it has in the minds of the general public?

Just yesterday the main headline coming out of the commission was the example of an AMP adviser who advised his client to consolidate his super to an AMP product, costing his client around 25% of the balance of one account (over $16,000) in exit fees, with no evident benefit to the client in doing so. How can that be allowed to pass?

The government has been called on to apologise for not calling the royal commission sooner and to set up a compensation scheme for the victims of banking misconduct by Bill Shorten, who only had his conversion to the cause a little over a year previously. Talking about such apologies would certainly seem to be political point scoring when the commission has only just started pulling out shocks and revelations and still has months (at least) to run. It will be interesting to see if Shorten calls for compensation should there be any misconduct involving industry super funds when they face the commission in the not too distant future.

While The Treasurer Scott Morrison and his colleague Kelly O’Dwyer do themselves no favours prevaricating when being asked if they were wrong to delay it, their “allies” in the coalition party room, Barnaby Joyce and Tony Abbott, unencumbered by responsibilities of leadership, have said they were wrong to oppose the commission. Abbott has even said the regulators of the financial industry should be sacked and replaced with “more vigilant” people, forgetting it seems that the government under his leadership pulled $120 million from ASIC’s budget in 2014 (which was followed by 200 jobs being lost there), only for the Turnbull led same government to restore the funding in 2016. Back when Tony was the leader, he had his finger on the pulse, emphasising a “greater role for self-regulation instead of state intervention.”

It could be said that ANZ took him by his word. There levels of detection of inappropriate advice went from 191 in 2013 to 2,810 in 2015 before leveling out to 2,499 in 2016. In the last year ANZ have performance managed 71 advisers and about half of those have left. So half are still there and half are out of ANZ. Good for ANZ. Are those who left now free to go to other licensee’s as was the case with a scurrilous westpac adviser who was ripping off clients?

ASIC has also come under criticism from people smarter than Abbott for not taking on the top end of town, as Ian Verrender writes:

     “Since the financial crisis, they have forked out more than $1 billion in fines and compensation for their misdeeds. But not one senior banking executive has faced a courtroom for any of this.”

Verrender continues the criticism of ASIC pointing out that it’s database, which houses company and director records earns around $720 million a year, more than twice the regulators budget of $330 million. The important question is asked - Is ASIC's role to provide the Federal Government with revenue or is it an enforcement agency?

So what can be done? How can the industry in particular, financial advice, chart a course through the current miasma and come out doing what it is meant to do - help people chart a course to, and achieve financial security?

At three levels - dodgy advisers must be forced out of the industry, advice firms and their owners must remember they’re in the service business and they should only profit if they’re providing value to the people they serve, and the corporate regulators should use their powers and come down hard on anyone at any level who is bringing the industry into disrepute.

Is it that simple? What do you think?

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