Big banks’ exit boosting industry co-operation

In a communication to parliamentarians on Sunday, AIOFP executive director Peter Johnston said the improvements in industry unity, which were recently remarked upon by government financial services spokesperson Jane Hume, were “no coincidence” given the exit of the last of the major banks from advice this year.

“Our working relationship with a number of like minded advice associations and the FSU has been excellent over the past 12 months – nothing formal, just conjunctly and collaboratively acting in the best interests of advisers and consumers,” Mr Johnston said.

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“We think this positive cultural change is no mere coincidence, with most financial institutions departing the advice industry. Institutions seriously entered the advice space in the mid-’90s by infiltrating certain advice orientated associations and used traditional divide and rule tactics to meet their political/commercial aspirations.

“Fortunately, the royal commission exposed their culture flaws and the disruption strategies have disappeared with their decampment.”

Mr Johnston flagged the AIOFP wanted to see further permanent separation of product and advice by ensuring better accountability for financial product manufacturers in the government’s incoming compensation scheme of last resort.

“This structure will make it fairer for the anticipated consumer compensation fund Minister Hume is currently considering,” he said.

“Advisers don’t manage/manufacture financial products and should not be held accountable for their structural failure – advisers should only be held accountable for poor strategic advice. Conversely, manufacturers should be held accountable for their products failing.”

Mr Johnston added that clear separation of product and advice in the compensation scheme would ensure PI costs for advisers were reduced going forward.

“PI cover is the third highest cost in a practice after rent and wages [and] it has escalated over the past 10 years due to advisers getting unfairly blamed for product failure,” he said.

“If product failure is taken out of the equation for adviser culpability, it will significantly reduce the cost of PI cover and this saving will be passed back to consumers with lower advice fees.”