(03) 9020 2905Debt Man column – The West Australian (Money)
For: November 30, 2009
Bruce Brammall
Debt Man
My grandmother used to refer to dodgy buggers as being “so crooked, they couldn’t lie straight in bed”.
Usually, Nana was talking about the person across the table who’d just fleeced her in a hand of cards. Her game of choice was Solo and we were betting with one and two cent coins, so fleeced might be an overstatement.
The line would also get a run about any blighter who wronged anyone.
Like copper coins, Nana is long gone. But I’m pretty sure she’d have looked at my career change from journalist to financial adviser with some concern.
“Few people respect journalists, Bruce,” she might have said, despite being married to one, producing another and letting her only daughter, my mother, marry a journalist. “But what journalists write about financial planners makes them sound so crooked, they couldn’t lie straight in bed”.
It’s an inaccurate generalisation to make of an entire industry. But while all industries have bad eggs, lazy sods, bored halfwits and dinosaurs who still want to operate the way they have operated for 10, 20 or 30 years, financial planning attracts spivs in the same way ACDC awakens that little bit of bogan that can lie dormant in anyone under 50.
Are the findings of this latest inquiry in financial advisers likely to have the effect of a tsunami, a wave or a ripple? Ripoll by name, but probably wave by nature.
It doesn’t ban commissions outright, as some commentators were demanding. But it should lift professional standards to give consumers far more comfort.
Among Ripoll’s recommendations were that ASIC be given more money and power to do things such as ban advisers who act inappropriately, provide tougher scrutiny of agricultural MIS schemes, work with the financial services industry to remove commissions, suspend licences and educate consumers.
But there were three that should fundamentally change the adviser/client relationship.
The first one is that advisers should have “fiduciary” obligations. That is, they must legally put their clients’ interests ahead of their own.
Indirectly, this will reverse the onus of justification on commissions. Challenged, advisers will have to show that the recommendations were not about a sale, but about providing advice that was valuable and pertinent to the client.
This doesn’t kill commissions. But it turns the screws. Sound advice would have to come first. Product (with or without commission) second.
In practice, if a client ever complained, an adviser who was paid commission would want to be able to show that they wrapped solid structural advice around any particular products they recommended.
Despite what some commentators suggest, commissions don’t conflict every adviser working in the industry. (But if your remember Animal House and the two consciences, devil and angel, on Larry’s shoulders, it would be safe to consider commissions to be the red devil. Given temptation, even Larry chose wisely.)
The second is increased surveillance by ASIC of advice, including annual shadow shopping exercises.
Annual ASIC shadow shopping surveys would work through fear. AMP got caned last time and was forced into undertakings with ASIC over the quality of its planners’ advice.
If Ripoll’s recommendation of annual ASIC shadow shopping was adopted, advisers would continually be looking over their shoulder. Good.
A third important one for consumers would be the recommendation to allow a tax deduction for financial advice.
More people would see seek financial advice, but it would also encourage more advisers to charge by the hour, or fee-for-service, further reducing reliance on commissions.
Each of the recommendations will make financial advice a tougher game to work in. And every time you make an industry harder to work in, more of the idiots will get knocked out or will leave.
I was always taught as a child that if I were to get lost or scared that I should try to find a policeman. They could be trusted to look after a lost kid.
If the aim is to create a financial services industry in which consumers can trust the average adviser with their money as much as a lost child on the street can trust a cop, then the Ripoll Inquiry is another step in the right direction.
And those advisers who can lie straight in bed will no longer be tainted by the same brush.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au .