1. Reference checking
The big four banks do not supply adequate references for their departing financial advisers. In our experience, they withhold information and in at least one case we know of, a bank did not disclose that an adviser had been reported for a breach. In an industry that is trying to increase professionalism, we see this kind of behaviour by banks as being a serious issue.
2. Best interests
It is not possible to act in the best interests of a client if advisers are forced to work from a restricted approved products list (APL) and/or if they are paid a bonus to sell a particular product. There are still many advisers working with restricted APLs and banks are still paying bonuses for certain product sales. This needs to be addressed.
The matter of best interests and the role of life insurance product providers also needs to be addressed. When the Life Insurance Framework (LIF) was introduced, providers argued that one of the reasons LIF was in the interests of consumers was because the cost of premiums would go down. In fact, premiums have gone up. The royal commission should therefore look not only at the behaviour of banking product providers in relation to best interests, but also at the behaviour of the providers of all kinds of financial products.
3. The role of product providers
On that note, there is not an insurance company that does not take business from advisers they know churn from one company to another. They take it because one company’s churn is another company’s new business. The way to fix this problem is first for the life insurance companies to keep a register of these advisers and not take their business, or put them on level commission only, which means that there is less incentive for them to churn business.
4. Adviser education
There is still no clear understanding around how FASEA will operate. It’s one thing to say everyone must have a graduate degree and provide transition arrangements for those with degrees in related fields such as perhaps accounting, commerce, economics, law – but what transition arrangements will be offered to older advisers with 25 years or more experience who do not have degrees? If no transition arrangements are offered, many of these people will disappear from the industry, which will drive up the cost of advice significantly because there will be a smaller number of advisers to service the same market.
The other education issue is that the government is delivering only sticks, no carrots. There is no incentive scheme to become a financial adviser, as there is, for example, via the apprentice scheme for people wanting to work in any of the trades.
If we are serious about building a robust advice profession that helps people build and protect wealth, we ought to be looking at how to attract and keep people working in the industry. This means someone, presumably the government, should be going into schools and encouraging people into the profession, perhaps by subsidising programs that demonstrate how to make a career in financial advice.
5. Professional indemnity
A number of factors are profoundly impacting on both the viability of professional indemnity (PI) providers and the cost of PI premiums and these in turn will ultimately impact on the viability of advice businesses and the accessibility of advice for consumers.
In relation to the viability of providers, there are companies that are in the PI market one year and out of it the next because they’re not making any money. For example, Allianz was in the market last year, this year it is not; AXA is in the market this year but it was not a couple of years ago. We have been lucky to have been able to stay with one company for the last 10 years and we have a track record, but we know it’s been difficult for others.
In relation to cost, premiums can be hefty and when groups want to lower the cost of the premium, they opt for a hefty excess. This obviously impacts the viability of that business because how many claims could it withstand?
Another problem complicating the PI issue is that it is very hard to get any clarity around the new complaints process. There is no information or transparency around exactly how it will operate but as limits have been increased, PI costs will likely increase as well. There also doesn’t seem to be a real understanding of how PI is affected by things like the ability ASIC now has to fine for breaches. We think there should be a mechanism to fine for breaches, but there is a need to examine what the correct mechanism might be.
The government may ultimately decide to create a community PI pool – but that penalises everybody all over again.
6. ASIC
ASIC can now also spend funds on industry reform and tax us with higher levies the following year. We think this may give ASIC an incentive to grow its own business. This is an issue which does not yet appear to have been raised, which the royal commission also needs to consider.
7. Direct offers and franchised advice
The royal commission should also look at whether life insurance that is bought direct over the internet or via phone and advice offered by companies operating a franchise model are currently serving consumers well.
The main issue with direct insurance is that while there is ‘automatic acceptance’ on policies, the policies are not underwritten at commencement but at the time of claim, which means consumers might think they are protected, when in some cases, they are not. These types of insurance policies typically have small print that consumers may not read. The other main issue with direct insurance is that it may actually be more expensive to buy than life insurance cover offered via life insurance advisers who consider their clients’ individual circumstances and needs.
In relation to franchise model financial advice, we know of at least one group that runs a bit like McDonald’s. They offer advice solutions that are made the way a hamburger is made – via a step-by-step process. Operators of this model apparently think they don’t need to bother with audits. But in our experience, issues don’t usually arise because there is anything wrong with a process or with documentation, but because of some other incident – perhaps something an adviser said in passing. It’s fringe things that trip people up, so audits are absolutely necessary.
The royal commission is charged with the responsibility of looking at the big picture and in the interests of consumer protection and in the interests of advice businesses, we believe these issues need to be addressed.
Michael Harrison is chair of Synchron
I think if you’re going to be critical of this article you should have the courage to leave your name. Although I don’t agree with all points, I do appreciate the time you’ve taken to write this piece and it will be helpful in guiding our firm moving forward. Thank you. Josh Dalton
Why should older advisers be different to anyone else? I am currently completing my master of FP. I started with no education in 2007. I completed the Dipfp, Advdipfp and now the Masters. I will move on to my cfp afterwards. I’ve alway worked full time and have a family. I never envisaged doing a uni degree and I’m sure many feel the same but it is so relevant to our work. The fp degrees are so specific to our profession and provide important education. Why can’t all fps complete these degrees? Why differentiate. Is there an element within Synchron? You cannot prove that these ‘older’ fps have what it takes. Let’s enhance our profession and ensure all of our professionals have the correct education.
Todays AFR on Dixon Advisory highlights that vertical integration isn’t restricted to banks and aligned groups. However it doesn’t fit nicely into the ‘Banks are terrible at advice’ rhetoric so will likely miss the attention of the Royal Commission.
How about putting another topic up at the royal commission
The responsibility of those at the top of the tree to act ethically
If there is misconduct then as a minimum the country demands that those who rum the businesses should be held accountable
I bet this won’t happen next week Aleks
Michael your comments around the banks not supplying reference checks is incorrect
I think you will find although you are not a meme bee of the ABA they will still supply you with reference checks
If you were to ask them you might be surprised at the response
Actually SOME banks have started to become more responsive but others still hide behind privacy.
I am aware of the case you refer to as it was clearly outlined when he was banned from the industry, however blind freddy could see there was going to be a problem with that particular individual
I’m also aware of the case he’s referring to because while he left it off this article they are more than happy to mention the company behind closed doors. In the example he mentions, the adviser gave referees who happened to be his friends from within the bank. Synchron didn’t ask for any further references from his boss, or compliance manager or anyone else… what did they expect?
That comment is completely incorrect. Synchron has a written reference form the bank’s compliance manager that neglected to mention that they (the bank) had already reported a breach. Read last Friday’s RC transcript to see a similar example (different adviser).
Product manufacturers should NOT provide advice as well. Simple. This solves 99% of all problems.
The governments of the day and ASIC are destroying the industry with red tape, compliance and excessive liability issues for advisers. Why would anybody in their right mind want to enter this industry these days? There are better and more rewarding career paths now than ever before.
Some very good points overall Michael. The question of how to retain ‘older advisers’ in the industry is not an easy one to solve, particularly for life insurance advisers who tend to be less qualified than full-service financial planners. it’s a question of balance, and recognising that everyone will have to do their bit. The FPAs 100 Point Model was a good start which did recognise this in part.
From my experience, the points raised do not only apply to banks, Insurance or private financial advisers. It was always my experience that Industry Funds and particularly State Government Superannuation Funds Advisers displayed the same propensity for non disclosure.
Some of these people were very good at advising their closed shop client meetings that they must stay away from other advisers other than their own. The result was that their clients often needed solutions other than what these Industry or Government Funds advisers could advise on or provide.
How about balancing out the supervision and regulation measures across the whole profession or industry, so that a 100 % of clients are protected rather than 25 or 50 %.
RB
Interesting comments but really reflects a lot of self interest in that you are just trying to look after some older advisers in the synchron stable. Fewer advisers will not result in the cost of advice going up. Advisers and licensees will need to adapt to the new way of the world whether they like it or not. PI insurance is also likely to only be accessible through the bigger well funded licensees – ie bank owned – smaller licensees don’t seem to have enough capital behind them
Fewer advisers will not cause the cost of advice to go up? Really? Well your economics didn’t teach you anything…or else you don’t have a related degree….
All valid points Michael. I think the last point is particularly interesting around direct insurance. I would suspect that the scrutiny of credit card insurances should be applied to direct life. Unfortunately most of the major insurers offer all these products through their direct channels.