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No one wins from this Royal Commission

The public garrotting of the banks and the AMP at the Financial Services Royal Commission should bring little joy to anyone with a sense of interest in public trust within the financial planning profession. No one is winning, least of all the good advisers that are outside the scope of the inquiry.

For IFAs, there is little to cheer about. The truth is clients don’t really care about the IFA terminology or aligned interest. They care deeply about the sense of trust and value in a relationship and if it’s betrayed everyone gets bracketed.

So, when a large custodial brand is damaged no one wins, not even the trusted value driven IFA advisers.

One observation worth commenting on is the vitriolic nature of the media reporting. It is an indictment on the journalists that they seem to gloat in things being wrong and do little to put some perspective on the challenges of managing an advice program that has absurd levels of regulatory intervention overrunning common sense.

Little if any attention is paid to the incredibly difficult task of handling Government and regulatory imposts on simple issues, to the extent that is incredibly challenging to discharge common sense advice and or guidance on the simplest of issues without breach of the Corporations Act.

Let’s remember the farcical period when both political parties refused to agree on the FOFA reforms and we had legislation about fee disclosure statements about to be passed, written into a regulatory update, withdrawn, repackaged and contradicted by ASIC and then Treasury.

The chaos that created is testimony that Parliament itself ended up acting on political posturing, not the interests of the Australian community.

A small example of the challenge is defining the client best interest test. Believe it or not, an adviser can breach the Corporations Act, fail the test but still be acting in the best interest of a client.

The reason is because the advice document itself, as opposed to the advice actions, is deemed to determine best interest. Put simply, it means if the document doesn’t provide sufficient evidence of exactly why the client is better off or fails to highlight alternate considerations, even if the client is better off, the adviser is penalised as technically having not acted in the client best interest.

It’s not easy partly because the issue lacks definition and under the current structure any adviser that actually behaves the right way, acts honestly and ethically and improves a client’s financial wellbeing can still be charged with not acting in a client’s best interest if their paper work is not discharged correctly. No other profession in the world has this and we all need to think about that.

All of this is not to defend or excuse the poor managerial behaviour of the listed companies. Far from it, but there are separate issues and challenges at stake and we all need to learn and grow a better profession from here not harbour its failings.

The challenge is one of moral leadership and management execution. Behind this but not inexcusable, is the challenge of ongoing profit growth from the listed companies in advice …and the impossible role of managers to generate increased fees for what amounts to being a professional advisory service.

I think we are all waking up to the impossible challenge of this whether it be a listed legal company or any equivalent listed entity that sells professional services time. Not just financial advice. Generally, professional service firms don’t work very well in a listed environment but they do work well in a partnership. Perhaps that’s a better future than the present vertically integrated wealth empires that use advice as a drawcard for profit in a product mechanism.

Whatever we find at the end of the review, some accountability needs to be sheeted back to the politicians and the bureaucrats – one major reason why Australians need an adviser is because of the horrendous complicated and absurd tax laws around superannuation. Wonder who created that need. Second issue is we all need affordable advice, and wonder where that’s heading.

Time to reflect on the benefits of this and a better future I think.

First published: 26 April 2018

*Written by Ian Knox. The views expressed are his own.