The Amazing Royal Commission
“I have been astonished by the revelations of the incompetence, arrogance and venality of the boards and senior management of these institutions”
Dear Client Unless you’ve been 4-wheel driving through the red centre, you would be aware that the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry has been sitting in Melbourne for the past few weeks and every day it seems new ghastly revelations emerge. If this disturbs and worries you it is understandable. I would like to provide some context for you and, I hope, some reassurance about the industry in general and Advisersure in particular. I will mostly focus on the financial advice sector but I will also make some comment on the banking industry.
The Royal Commission’s brief has seen it examining institutions with regard to breaches and failings that have occurred over recent years. To an extent, many of the cases that have been brought up have been reported previously when they first came to light. That so many horror stories are being given headline treatment at one time can perhaps give the impression of the whole industry being a cesspool of incompetents, cowboys and shonks. This would be a false picture. However, I do not, for one minute want to give the idea that I believe there aren’t a lot of things wrong and hopefully this Commission will finally force politicians and regulators to fix some of these problems.
Over more than 30 years there have been a number of commissions and reviews resulting in regulatory changes and it is clear that critical failings have not been addressed. In my view 3 things should have been implemented 20 years ago and should be implemented now:
- Firstly all advisers should have been licensed and specific competencies should have been subject to license endorsement; it is ridiculous that an adviser with only basic level competency can advise on Self Managed Super or multimillion dollar investments.
- Secondly commissions on everything except risk insurance should have been outlawed; this finally occurred in 2013 when FOFA was introduced.
- Thirdly, there should be a clear separation between owners and promoters of product and firms delivering advice. So called vertical integration is a major problem.
Implementation of these three measures would not have eliminated all the problems we have seen but would have gone a long way to preventing disasters like Gunns and Great Southern, Westpoint and Storm Financial for instance. Well the politicos, undoubtedly heavily influenced by the Big Banks, failed at every step with the results we see today.
With that background in mind let me offer a bit of context to what we are now seeing. There are perhaps 25,000 authorized advisers in Australia; many are decent and honest and caring. Unfortunately over 45% of them are authorized through large institutions such as major banks, industry funds and firms like AMP. This has resulted in a product-sales focus allied to very moderate competency and poor supervision. We have known this for many years; it is now coming as a revelation at the Royal Commission. There are good advisers working in the institutionally owned licenses but unfortunately tens of thousands of clients will have received second rate advice from the majority. And just because an adviser is not aligned to a big institution doesn’t guarantee quality although it may improve the odds.
Now I’d like to say a few words about Advisersure. Our philosophy is based on the belief that we should deliver the best and most relevant advice that we can to our clients. Achieving that over many years has required us to take a number of steps:
- Licensing – we have always chosen to work with licensees whose philosophy aligns with ours. We have changed licensees on two occasions when they have become institutionally owned resulting in pressure being brought on us to “sell” product. We are currently licensed through the privately owned MyPlanner Professional; we are largely unconstrained as to the advice we give.
- Qualifications – our advisers and staff are qualified to advise in the areas our clients need. SMSFs are an important part of our business so I have been a Specialist Adviser (SSA) since the designation was first available. Emmett gives Aged Care advice so he is an Accredited Aged Care Specialist. Both Emmett and I hold the Certified Financial Planner (CFP) qualification.
- Training – we seem to never stop learning. A major flaw of the vertically integrated model is that advisers live in the licensee’s bubble and are fed only what the licensee sees fit to feed them. We have consciously sought education from the widest and the best sources. We always attend the Portfolio Construction Conference and Summit – widely recognized as the best source of knowledge in the investment world. We always attend the SMSF Conference and also seminars run by Grant Abbott and other leading SMSF and Estate Planning Specialists. This takes a lot of time and costs a lot of money but we believe it is essential if we are to serve you effectively.
- Transparency – we decided to switch to a fee-only model 20 years ago and we receive no commissions or kickbacks from any product we recommend except risk insurance and that’s only because the products do not lend themselves to commission rebating. We also decided years ago to stop using administration platforms as they serve their promoters and advisers well but they are just a cost to clients.
- Network – we know we can’t know everything so over the years we have built connections with a network of experts in tax, superannuation and law as well as many other niche areas that affect our clients’ lives.
Finally I’d like to offer some comment on the major banks and AMP. Perhaps I am naïve but while I never expected the big institutions to act in their clients’ best interests I admit I have been astonished by the revelations of the incompetence, arrogance and venality of the boards and senior management of these institutions. They deserve everything they will get and probably more.
So where to from here? There will be still more revelations and upheaval. Hopefully, at the end of the day, we will have a better structured industry but perhaps I can be forgiven for some doubt that this will happen. What is good is that the spotlight of public and shareholder opinion is shining fiercely of the management of these organizations and the regulators are stepping up and taking action. Let’s hope the pollies actually get it right for once.
At Advisersure we will continue to do the best we can for our clients; if you have any questions or comments please call me.
Special Offer
We too are disturbed by what has been reported and we know there are people who are very concerned about their position. If you have friends or relatives who are worried about the advice they have received we would like to offer them a free health check on the advice they have received.
