Banning financial product commissions is not a solution to the problem of inadequate advice, according to a global financial planning industry leader.
Jurisdictions such as Australia, the United States, the UK and Singapore are in various stages of debating the validity of remunerating financial planners via product commissions, US Financial Planning Standards Board (FPSB) chief executive Noel Maye told a press briefing at the Financial Planning Association Congress in Sydney yesterday.
However, Mr Maye added that a ban on commissions is often a knee-jerk reaction from regulators, which doesn’t solve underlying problems in the financial advice market.
“I think [banning commissions] is a proxy conversation for misselling, loss of trust and other issues that have all got wrapped up in this discussion by the regulators,” Mr Maye said.
The FPSB – of which the FPA is a member – will seek to use its position as a member of the International Organization of Securities Commissions (IOSCO) to “influence” government responses to the financial planning sector, FPA chief executive Mark Rantall said.
Having attended a recent ISOCO conference in Luxembourg, Mr Maye said regulators are increasingly aware of the role of industry bodies in raising professional standards and are willing to negotiate – as seen in the UK, where a carve-out from the conflicted remuneration ban for risk advisers.
“Regulators are coming to the realisation that you cannot legislate ethical behaviour,” said Mr Maye, who heads up the FPSB’s international headquarters in Denver, Colorado. “You can make laws – but it’s actually the professional bodies that drive interest in ethical standards.”
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