In a submission to the Financial System Inquiry (FSI), UNSW professor of law Dimity Kingsford Smith drew attention to what she sees as a “market failure” in the Australian financial planning market, arguing the FOFA legislation is not sufficient to weed out systemic conflicts.
The academic, who also heads the Financial Planning Association’s internal Conduct Review Commission, said her assessment of the financial advice sector stems largely from the “shadow shopping” exercises conducted by ASIC and the fact that “enforceable undertakings” have been entered into by major players within the industry.
“These market failures clearly require regulatory responses other than disclosure: mandated improvement in training and conduct standards and a national examination would bring Australia into line with comparable countries,” Professor Kingsford Smith wrote.
“The Future of Financial Advice (FOFA) reforms have gone some way to dealing with concentration and conflicts of interest: the ‘best interests’ and ‘client first’ tests and curbs on conflicted remuneration, give grounds for optimism.
“However, unless the values embedded in these rules are internalised by individual advisers through greater professionalisation (higher standards for entry, training, supervision, discipline and exit) they will remain ‘regulation on the page’ and not ‘regulation in action’.”
Echoing a number of other submissions to the FSI – including an explosive letter from AMP-linked planner Rhys Wood – Professor Kingsford Smith also drew attention to the “remuneration incentives” existing within some licensees “driving a distribution culture” which is undermining individual adviser responsibility.
In addition, the submission suggests the “market failures” also stem from “under-investment in training and supervision”, particularly in terms of licensee recruitment.
At the outset of the submission, Professor Kingsford Smith makes clear the views in the submission are reflective of her “personal professional capacity” and do not stem from her capacity as chair of the Conduct Review Commission of the FPA or as a member of the New Zealand Financial Markets Authority Code Committee.
Did anyone read or listed to the news,We have a police force in NSW controlling crime and shootings with all the penalties. Crime is committed, with all the education, threats, unless we exercise some common sense from the management down. (including the financial industry) In the last 30 years in the industry every month notices appear in these columns with banning, jail etc, but it is still happening, do you think a further degree in education will fix the problem?. Anyone with an answer let us know.
Dave, this sums up the quandry of our industry perfectly. The problem exists from the CEO right down to the bottom end of management, and in particular how they are remunerated. Its important to identify that its not the fault of management, they have jobs to do and as indicated are directed on their KPI’s all the way from the top. The only way that change will occur is via legislation, however this should not be focussed on making life more onerous for the planner (and making them a target) but squarley at leveling the playing field with conflicted remuneration models.
This issues will always exist whilst management remain sales focused-FUM-market share etc. They don’t give a rats as long as targets are met and they get their bonus, their attitude is let the adviser get screwed and cop the blame and if needed-pay for client silence. When the powers to be start ‘shooting” management that are the problem and remove the instilled culture that prevails-maybe the planners of this world will cease to be the target. the only method of “clean up” is to start at the top, NOT kicking the coal face.
[quote name=”Gerry”]They still don’t get it. License providers/dealer groups just want size and FUM, they don’t care about an advisers qualifications as long as they meet the minimum. Most of the industry is like this because of VI (sounds like a disease, well it is). Extra regulation increases costs which makes it more crucial that dealer groups focus on size and revenue.[/quote]
So the focus should be on how to structure legislation so that it benefits independence and makes it more difficult / expensive for VI models. i.e. The bar is much higher on proving best interest,conflicted remueneration and supervision of in house product selling. Im not suggesting that planners that work on VI models are not as professional as independent planners, just that if anyone has to prove it, perhaps their dealer groups do.
They still don’t get it. License providers/dealer groups just want size and FUM, they don’t care about an advisers qualifications as long as they meet the minimum. Most of the industry is like this because of VI (sounds like a disease, well it is). Extra regulation increases costs which makes it more crucial that dealer groups focus on size and revenue.
WOW. Seems the light at the end of the tunnel just went out. Surely one of these very critical intellectuals will eventually wake up to the fact that the vertical integration models are counter to the future of our industy? Sure, raise the bar on training and supervision, but conflicted remueneration and in house selling needs to go first.
Viva la Independence!