The Royal Commission’s recent hearings into the financial advice sector were confronting and raised many serious issues.
The personal side of these stories are very sad and have diminished confidence in the whole industry.
Unquestionably, people must be able to trust that their financial adviser will provide them with quality, unconflicted advice that is in their best interests.
While the hearings have shown misconduct has occurred across the sector regardless of business model, some did concern BT, and I am sorry that it occurred. We have made significant investments in compliance, monitoring, education and training but we acknowledge that we haven’t always got it right and we have conducted extensive reviews and remediation activities within our financial advice business.
Given the importance of providing good advice to Australians, we need to recognise that the FOFA (Future of Financial Advice) and more recent Financial Adviser Standards & Ethics Authority (FASEA) reforms will not be sufficient in order for financial advice to become a recognised profession.
I believe there are three essential changes required.
First, there has to be a change to the regulatory and professional construct of the industry, building on existing reforms and modelled on other professions. For financial advice this could see an expanded role for FASEA, as an independent body responsible for managing the individual registration of financial advisers.
This is a position we first put forward during the Financial System Inquiry.
Individual registration would complement the educational requirements set by FASEA by genuinely professionalising the sector, much like other professionals, such as accountants and lawyers. We envisage FASEA would be responsible for matters such as: entry into, and removal from, the profession; issuance of practising certificates; continuing professional development; and the setting of professional standards for individual licensees.
It is encouraging to read that Treasury sees merit in this approach. In their submission in response to the recent hearings, they note that individual licensing of advisers and changes to the disciplinary regime could provide further protection of consumers and the option “should be given full consideration”.
While this regime would enhance the standing of individual advisers as compared with the current system, it would need to be complemented by a Fidelity Fund. Such a fund would be similar to those which exist for the legal profession and, critically, would be paid for by all members of the profession. As a profession, financial advisers would be judged on the quality of the advice they provide to their clients combined with their ability to stand behind that advice should something go wrong.
Second, the ability of poor planners to simply move between advice businesses must be stopped. The proactive steps taken by the Australian Banking Association and its membership to develop a reference checking protocol across its members are welcome, but it needs to be shared across the entire financial advice sector to better protect consumers.
Third, the industry needs to carefully consider the future of grandfathered remuneration arrangements and whatever conflicted remuneration remains permitted under FOFA. We recognise that the removal of grandfathering is complex and may have significant implications for some advisers and licensees. At the same time, whilst these arrangements remain, financial advisers and licensees will not gain the trust and respect that they seek from the community.
Given the number of individuals and licensees affected, clearly this can only be addressed through legislative or regulatory intervention.
The path to professionalism has taken longer than we would have liked.
However, we must use the Royal Commission as a catalyst for the advice industry to emerge a profession. These changes and legislative reforms will help deliver a genuinely professional financial advice industry that can, over time, earn the trust of consumers.
By Peter King
Acting Chief Executive Officer, Westpac