A royal commission would not be pretty but at least it would see those actually responsible for the industry’s conflicts – and not advisers –brought to justice.
Having been through more inquiries and witch hunts in the past few years than almost any other industry, most financial advisers understandably bristle at the prospect of a royal commission.
True, it would probably arm the advice industry’s enemies with ammo and in the short term may even further wound the industry’s reputation.
But on the flipside, such an inquiry could also serve as a process of catharsis after a very difficult couple of years, and could result in blame finally being placed at the feet of the fat cats that created and perpetuate vertical integration, not their so-called ‘distribution force’.
The problem with all the inquiries we have already had is that they either focus narrowly on advisers – education and professional standards for example – or on the overall state of the financial system.
The FSI touched on vertical integration in advice but ultimately decided against any meaningful reform, perhaps because (as David Murray claimed) it wasn’t the brief handed to it by government, or perhaps because, as John Hewson famously told ifa, a former Commonwealth Bank boss wasn’t the right man for the job.
The Ripoll inquiry and subsequent FOFA wars did look at wars did look at the elephant in the room, but resulted in legislation that was more focused on fee disclosure than ownership disclosure. In other words, the focused on advisers, not what ASIC calls their ‘controllers’.
We are yet to have a meaningful process that gets beyond blaming advisers to look at the structural impediments to sound advice – the executive bonuses, volume rebates and soft dollar incentives we all talk about over beers and know continue to exist in the major institutions.
You only need to look at Bill Shorten being implication by the Royal Commission into Trade Union Governance and Corruption to realise the great benefit of these types of inquiries.
Compared to run-of-the-mill parliamentary inquiries, an independent probe of this kind would have greater powers to compel the insto advice bosses to face the stand and explain that they have traditionally seen advisers as nothing more than a salesforce, rather than a professional class of client-centric advisers.
The differs greatly from the recent Senate Estimates hearings, for example, where a simple ‘no thanks’ was all that was required to thwart the parliament’s attempts to haul representatives of BT and AMP before a committee.
A royal commission may have the perverse effect of actually holding captains of industry to account – something that is seemingly impossible to occur under governments of either stripe.
With IOOF now being added to the list of major advice providers under the regulatory microscope, calls for a royal commission are getting louder and there are signs that even Coalition MPs – traditional advice allies – are beginning to flip on this issue.
“I have spoken to a range of backbenchers that are now supporting the Royal Commission,” Nationals senator John Williams said just after the revelation that 37 NAB financial advisers had quietly been sacked for wrongdoing in recent years. “They have constituents affected; the push is growing”.
Following the claims of insider trading and product pushing at IOOF that appeared in the same newspapers, Senator Williams said the tally of RC-supporting MPs is rising even further.
Say what you will about Fairfax’s approach to its investigations or what may be perceived as an anti-adviser agenda, but the reality is that the story is out there now and has cut through enough to drop IOOF’s share price more than 20 per cent in a single day.
For too long advisers have been blamed for product failure and dodgy incentives implemented further up the chain.
Almost all of the industry’s problems were created in skyscraper boardrooms, not street front advice practices.
A royal commission would be painful, but it may ultimately be necessary to expose the truth once and for all and begin the process of rebuilding consumer trust.
Aleks Vickovich is a contributing editor at ifa.
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