The Federal Government recently announced a royal commission into the financial services industry.
This Commission has been a long time coming. While the current Government originally vowed against it, it was influenced by sustained pressure from the public, and followed an admission from the big four that the industry needed an inquiry to restore faith in the system.
Make no mistake it won’t be pretty. Some practices within the financial services industry, by not only the banks but large institutions and dealer groups, have not been in consumers’ best interest.
They have been conflicted, biased and designed primarily to add to bottom line profit.
It will uncover numerous examples where Australian Financial Services Licences (perhaps not just the banks) have not shown a duty of care to their customers.
For example, where ludicrous financial incentives were provided to those offering financial advice based on volume, and where institutions recommended company-owned products to clients rather than options that were in the best interest of the client.
So what will happen next?
Nothing! Well, nothing meaningful, that’s for sure.
There will be reputational damage to certain brands and perhaps some fines dished out. However it’s doubtful that anything material will come from this, other than a promise or two from the institutions exposed that certain practices won’t continue, which we all know is not true.
What should happen next?
Up until this point in time, any changes to the financial services industry have been akin to patching a crack in the wall, but a crack can be a symptom of a shaky foundation and the financial services industry’s foundation is precarious.
Patch jobs are not going to cut it.
Let’s be honest, the industry was born out of selling products to unsuspecting consumers and “financial advisers” being paid by commissions and volume based payments to the product manufacturer.
Clients’ best interests were often not considered in the first place.
Although commissions were banned as part of the Future of Financial Advice (FOFA) legislation introduced in 2014, the grandfathering rules mean they still exist and financial products for many customers will be left untouched.
Some advisers will continue riding the gravy train, and mark my words, commissions are still paid one way or another.
To enact real and meaningful change to the financial services industry, we need a courageous government that rebuilds the industry’s foundations based on one simple premise – “what’s in the consumers’ best interest?”
The areas of focus should be:
- Improving financial adviser education standards
- A complete removal of commissions (old and new)
- Separation of license powers (advice verses product)
Patch jobs will not repair the loss of trust and faith of consumers.
Those who pushed for the Royal Commission think they are representing consumers who are feeling ripped off by the big end of town, but they know better than anyone it’s all hot air.
Consumers should not be fooled into thinking the royal commission will have meaningful impact on them.
Andrew Hewison is the managing director of boutique firm Hewison Private Wealth.
When people get on their high horses banking on about fee for service and charging for risk advice, I’d like to know how many actually hand their clients an invoice and how many recoup their fee via the product.
I doubt many are TRULY fee for service
We certainly do and we explain why we are charging the fee we charge. Having your client understand this and the value that they will receive for the fee is a very powerful thing.
I don’t think your firm’s ideal client is a typical mum and dad earning $40K a year. You’re a “boutique private wealth firm” specialising & using direct equities. Selling “fees” to these clients with higher net wealth and strong cash flow is actually easier. For some people it very much seems like if the only way they were allowed to charge was via commissions they’d feel they’d be conflicted and unable to work for the client. We really should move on from this whole fee v commission debate as they’re bigger conflicts of interest around. Writing an article mentioning commissions is either 1) self serving or 2) demonstrates a very poor understanding of the bigger conflicts of interest that are out there. I’m sure the CBA would love your submissions as it would be a welcome detractor from the main point of any royal commission.
There is not a single risk adviser in Australia who has been able to implement a fee for service model, at scale, on risk only advice. Many have tried, all have failed.
Further to this, how have you gone when spending upwards of 50 hours on an income protection claim only to invoice the client for $15,000?
As long as the drives clients to receive sub-par advice from generalist ‘holistic’ practitioners who are able to blend in their fee with other services, this is undoubtedly a terrible outcome for the client.
Spot on! The academics and those pushing for needlessly high qualifications for pure life risk advisers should read your comments over and over until it sinks in. Well said Anonymous.
BS. Commissions are just another way of getting paid by the consumer indirectly. Having worked in many low society areas, you are kidding yourself in asking for fee for service.
If you really care about the consumer give them an option based on their scenario 1) commission as current 2) fee-for-service if they prefer it
The thousands that need advice out there, will not be able to access it and end up in terrible direct products.
Massive unintended consequences on their way. Or.. are they really “unintended” ..
Had a look at your website Andrew – risk is barely mentioned, and only in that phrase the banks use, “wealth protection”. I get annoyed when holistic advisers seem to be advocating fees for risk advice without addressing the obvious – if my commission has halved, will my clients pay me enough ( $2,500 or more) to break even on a complex risk SOA dealing with replacement of a policy, even if its clearly in the clients best interest of the client. No point in getting the best risk advice if the adviser cannot hang around, leaving the client at the mercy of the insurer at claim time.
I get annoyed when “riskies” claim they can’t get clients to pay for advice when everyone else can and they’ve never even tried! If you can’t articulate your own value to your own clients could you get out and stop giving the rest of us a bad name!
I don’t see the issue with insurance commission and I’m not fussed about it dropping to 60% still fair pay
However some clients just won’t pay for risk advice as it’s a grudge purpose
If your dealing with customers in a space where they can afford to good luck to you
I enjoy helping “real people” on a budget where insurance is needed but necessarily affordable
Find me one person who has charged fee for service on standalone risk advice at scale, come back in a few years when you still haven’t found anyone.
You either know not of what you speak, don’t write risk successfully or are one of the ‘loonie left’ who will get “annoyed” at anything that doesn’t mesh with their narrow experience. [b]You cannot charge stand-alone risk fees in Australia to a mums and dads market.[/b][i][/i] You and the misguided industry ‘consultants’ need to get this through your thick heads. Either that or GO OUT AND TRY IT! Let us know how it goes for you.
I had a look at the website too. Multiple uses of the word independent and no FSG for viewing?
if you stop the rot at the top, you stop it all the way down. if this inquest is to be a success in any way- START AT THE TOP
Our profession has improved enormously and it will continue to do so with the new education reforms coming through. But one area we definitely need to lift our game is this insipid behaviour of some individuals who think it is acceptable to publicly slam the rest of the profession because they believe their own particular business model is superior to the rest of us. It is a most distasteful, unprofessional act that you don’t find in other professions.
We’ve a long way to go Ben. We’re not a profession and it will take a very very long time to even come close to being able to call ourselves a profession. We are just an industry. Hopefully the RC will go someway to addressing it. You don’t find Doctor’s driving around advertising their wares on car doors, you don’t find Doctors putting leaflets on car windscreens which is what Social media “could be” argued is.
In regards to the Royal Commission (the content of this story), if advisers just mull around and say “nothing to see here, it won’t do anything” then that in itself is unprofessional. Doctor’s surgery’s are not owned by Pharmaceutical companies, either outright or are allowed to re-brand whilst being owned by the pharmaceutical companies. Doctors, Pharmacists, are not allowed to own the drug company neither. If Drug Companies did own Medical Centre’s and operated under a different name, there would be an up roar. Especially if they prohibited other Drug companies from visiting or emailing their GP’s or had an approved Drug list based on who paid the most or what was best for the Drug company. In addition Medical Associations ( in our terms the FPA) would not be getting payments from Drug Companies, nor offering different fee structures based on what drug company they worked for. To put up with that is unprofessional. We are a very long way off indeed Ben. P.s my rant was at the publisher and not the author.
You are wrong about pharmaceutical companies not owning pharmacies; and doctors don’t need to advertise because the colleges strictly control their numbers to ensure there is a shortage of supply. But let me tell you something about doctors. There is a very wide range of competency. In fact if you know people in the medical field, they will privately tell you how frightening it is. But you won’t hear about it because there is a code among doctors, to not publicly slander one another. On the topic of professionalism, I agree with the separation of product and yes there are areas we can improve. But there are also some things we do really well. Try getting a written document from another professional which clearly explains their advice and the basis on which it was provided. Very difficult. And if you have been treated badly, where is the free ombudsman with binding determinations? If you take a step back and have a good look at our profession compared to others, you will find that in some respects, we are well ahead and consumers are better protected.
Good points, well said. Yes we have done many good things. I wonder how many of the points involved advisers self regulating as opposed to the Government of the day stepping in.
Minutes from today’s staff meeting: “Hey guys we’re packing up for Christmas and going to the beach so lets just cut and paste from advisers Christmas newsletters now. Now accepting mindless rants from anyone. Has anyone seen my towel and thongs”