Financial advisers should be forced to disclose any non-advice-related payments from product providers, since this is part of the reason why Australians are still sceptical of advisers, argues Fortnum Financial Advisers executive chairman Ray Miles.
In a white paper released last week, Mr Miles said FOFA may have banned conflicted remuneration, but it did not separate financial product and advice.
This could be achieved by increasing transparency, making it illegal for product manufacturers to coerce advisers and lifting entry requirements for AFSLs, he said.
"Financial planning has become inextricably linked to product selling and conflicted remuneration. Australian investors don't trust financial advisers to act in their best interests, even if it is the law," Mr Miles said in the white paper, titled And the walls came tumbling down: Why the industry must build a new foundation.
"The advice industry must be more transparent and pro-actively stamp out conflicts if it hopes to improve its image and earn consumers' trust. It should embrace, indeed spearhead, sensible reforms rather than insist on self-regulation which it has repeatedly failed to do so."
Mr Miles said the industry could increase transparency by forcing advisers to disclose any non-advice-related payments from product providers.
"[Advisers] don't have to (and don't) disclose if they received a payment to join an institutionally-owned licensee, or if their practice is part or full-owned by a product provider," he said.
"If an institution has acquired an interest in a practice, as is increasingly common, advisers are not required to disclose the sale price or details of the arrangement, for example, if a higher price can be achieved by hitting specific sales targets within a set time period.
"Arguably clients have a right to know given these payments and deals have the potential to influence advice. In cases where advisers also own equity in their licensee, they should also disclose any dividends," he said.
Mr Miles is in favour of licensees being made to publicly disclose their revenue and profit, and the average cost of providing licensing services. He would also like a law that makes it illegal for product providers to pressure advisers to sell their products.
"In addition to client fees, [licensees] should be clear and upfront about non-client revenue sources like rebates, subsidies and allowances," he said.
"In other industries, coercion is regarded as criminal behaviour, however, it's largely ignored in financial services, especially within salaried networks. There must be clear and enforceable boundaries between advisers and product manufacturers to protect consumers and advisers."
Mr Miles added that many product failures that occurred in the past decade happened in small, independently-owned AFSLs with directors who had "limited compliance experience and little understanding of how investment products work and should be selected".
"Applying for, and gaining, an AFSL can cost as little as $6,000. There must be tighter restrictions on who can be granted an AFSL and there must closer monitoring of AFSLs," he said.