As far as reputations go, financial planning doesn’t get much worse.
In 2014, the former chairman of ASIC Greg Medcraft described the industry as “absolutely appalling” and said it was “heartbreaking to actually see people who have been given inappropriate advice”. Commonwealth Bank whistleblower Jeff Morris accused it of rampant misconduct, lax education and poor ethics.
The royal commission also waded in and painted a picture of a sector motivated by greed and dishonesty and too often forgetting the best interests of clients.
Financial advice is an industry in dire need of reform. It’s why it is so puzzling that sections of the industry are taking up the cudgels in an attempt to delay, dilute or redo a reform package of legislative instruments due for release this month.
The legislative instruments include a code of ethics and new education standards, the exam and a professional year, compiled by the Financial Standards and Ethics Authority (FASEA), an independent body set up by the government in April 2017 after a series of scandals.
In the next few weeks FASEA will release the instruments embodying the code and standards for parliamentary consideration. It has given the industry until January 1, 2024, for existing advisers to have FASEA certification to be able to continue to advise clients.
Existing advisers with no degrees will need to undertake eight subjects equivalent to a graduate diploma. If they hold an advance diploma in financial planning, that would count for two credits. Those who have certification with the AFA or FPA would get two more credits. There will also be a new financial adviser examination all advisers have to sit and a code of ethics.
With a legislative deadline of January 1, 2019, pressure is mounting.
In the lead-up to their release, which will give exact details of what’s involved, there has been a lot of mudslinging, scaremongering and political lobbying. It will be interesting to see how much traction it gets and whether FASEA – or parliament – buckles.
In a paper titled “FASEA Fiasco” the Association of Independently Owned Financial Professionals (AIOFP) wrote: “An unfortunate story of senseless megalomania destroying an industry, careers, jobs and families.”
AIOFP executive director Peter Johnston went on to say: “It seems FASEA’s major objective is not to facilitate higher education/ethical standards but decimate an industry, leave thousands unemployed and destroy the businesses of thousands of hard working Australians and their families – it is most unAustralian.”
It estimates 10,000 advisers of the 25,000 currently operating in the industry will leave over the next five years and with them 25,000 administration staff as a result of FASEA and legislative reforms to life insurance commissions.
There is no question reforms will cause disruption but the industry has had years to fix itself up.
In August 2009 ASIC delivered a 184-page critique of the financial planning industry recommending commissions, volume-based bonuses and other kickbacks be banned due to poor behaviour.
Then David Fawcett in his parliamentary inquiry in 2014 recommended lifting the standards of education to degree level and introducing a code of ethics. Around the same time, David Murray in his financial system inquiry said the government should “prioritise” a review of minimum standards in the financial planning industry, with many stakeholders “highly concerned” about low standards and most supporting “education requirements to a degree level”.
There have been a number of parliamentary inquiries, the royal commission and numerous ASIC reports, all calling out bad behaviour and a need for reform.
There are some good financial advisers who have been pushing to professionalise the industry for years. They are educated, operate a business model based on fees instead of conflicted remuneration and put their customer interests first.
But they are being drowned out by the shrill scream of those who want to do it at their own pace.
The problem with that is the industry has a proven track record of not being able to self-regulate.
The AIOFP, which has 140 AFSL holders as members under an umbrella of 4000 advisers, has sent emails to its financial planning members asking them to join a public demonstration on November 26 and 27 in Sydney and Melbourne if the precise details of the reforms “are not attractive to us”.
The AIOFP has been active in Canberra, lobbying both sides of politics, and circulating photos of Tania Plibersek with AIOFP members.
It told members in an October 26 email it was lobbing in Canberra because over the past 20 years changes have not been in advisers’ best interests. It listed some of the areas where advisers came off second best, including Future of Financial Advice legislation that banned commissions, the Life Insurance Framework that included reductions in upfront commissions and trailing commissions and FASEA. “They are classic examples, institutions win, advisers lose,” members were told.
AIOFP’s Johnston told this column his plan was to make the AIOFP the “advisers association”. He said he had put in place two political strategies.
First, it has joined the Small Business Association to represent it in Canberra and second “we are encouraging our members to join the powerful white collar left wing union the Finance Sector Union”. He said the FSU has a strong say in the ALP national financial services policy agenda and the AIOFP would manage a new financial services division with a committee that formulates strategy.
“Considering an ALP government is more than likely within six months we think it makes sense to be in the tent.”
It has also set up an anti FASEA petition on change.org, so far attracting 28 signatures.
And it has increased its presence in industry magazines, including linking the coalition’s disastrous Wentworth loss to FASEA. “Wentworth loss opens Coalition to FASEA changes,” the headline in IFA magazine read. It quoted Johnston saying there were more than 1500 financial advisers including support staff living in the seat of Wentworth.
The industry ‘hates them’
He told the magazine after the Wentworth loss he went to Canberra. “We had a better-than-expected meeting with seven Coalition politicians at Parliament House on Monday. We had just over 60 minutes to put our case forward to Minister Stuart Robert, Minister Kelly O’Dywer, Whip Nola Merino MP, Craig Kelly MP, Bert van Manen MP, Tim Wilson MP and Alan Tudge MP.”
The message from the minister and backbenchers, Johnston told IFA was that the original FASEA proposal would be mitigated and adjusted significantly. “That’s the impression we got,” he said. “Based on direct feedback from the committee and the positive support we received from the group, we feel FASEA will be greatly mitigating the legislative instruments [LI] due to be released next month,” he said.
Given FASEA is an independent body it would be alarming if it was being subjected to political influence of any kind.
Johnston later told this column at the meeting with the seven coalition politicians he made it clear why they will have 25,000 advisers, 75,000 support staff and 3 million satisfied clients against them at the next election.
“We pointed out that in the seat of Wentworth there were over 2500 advice industry persons voting against them. This issue is not one where consumers will easily forget. When you have your dignity, your professional life, your career and your family’s financial position attacked you will hate the perpetrators for life. We told them the industry currently hates them.”
It is all getting very heated but at the end of the day existing planners have until 2024 to adapt to the new education requirements. Winning back trust doesn’t come easy.