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This week’s ABC Four Corners program put the spotlight on the Commonwealth Bank of Australia (CBA), highlighting the ‘sales driven culture’ of Australia’s financial institutions and the flawed proposition of institutionally employed financial planners.
It is a clear example of the need for the Federal Government and the corporate regulator to urgently draft legislation that separates licensing Independent Financial Advice from Financial Product Sales (FPS), to ensure consumers are able to distinguish one from the other.
The Four Corners program demonstrated how a distinct lack of accountability, corporate responsibility and commitment to clients’ best interests had highly damaging affects to individuals’ financial situations. It was revealed that in 2009, CBA had the equivalent of 1 and a half compliance officers controlling the actions of 700 advisers and 300,000 clients. There are two words that are key to the provision of professional financial advice: independence and fiduciary. The absence of either, as is the case with retail financial institutions providing financial advice, equates to unacceptable conflict of interest.
The introduction of Future of Financial Advice (FoFA) reforms was intended to provide greater protection to individuals looking to achieve financial security; however they have not gone far enough. How long does it take for those in power to put the community’s best interest over the big end of town? How many people have to be hurt and lives ruined by the self -interested actions of conflicted organisations?
Why is the system flawed?
In truth, major financial institutions do not want to be in the advice business. They rely on the advice network as their product distribution channels to get clients’ funds under management where they can make money. The sales-driven mentality and completely inadequate compliance systems make financial institutions unfit to provide appropriate and reliable financial counselling and advice.
What is the impact on truly professional independent financial advisers?
Currently, more than 80 per cent of the financial planning community is employed by “product development” institutions. A financial product salesperson working for a product developer or financial institution will never be able to truly fulfil the best interest duty as they are undeniably conflicted through commercial interests.
The Financial Planning Association of Australia (FPA) has a degree-standard in place and a clear definition of what it considers to be the appropriate criteria defining an Independent Financial Adviser. However, anyone can become a licensed financial adviser following completion of 4 subjects of a diploma standard – not even a full diploma.
This has severe implications for the reputations of the truly independent financial advisers who do look after clients’ interests. I would like to see the bar lifted for those who legitimately want to hang out their shingle as professionally qualified and committed advisers acting in clients’ interests, and license them accordingly with strict rules of conduct, a robust audit process and disciplinary process.
How does Hewison adhere to the best interests duty outlined in the FoFA reforms?
Since the Four Corners program aired on Monday, our Advisers have been inundated with calls and comments, mostly to the effect of ‘thank gosh you’re independent.’
As a single-office independent financial advisory firm, Hewison has a four-member compliance committee which includes an externally employed Compliance Lawyer. We voluntarily submit ourselves to two external audits annually in addition to an external audit of our client management systems. Furthermore, our peer review system ensures every piece of advice that leaves our office is vetted by our peers.
Why do we put our firm through all this? We are in the business of advising and assisting individuals manage their financial situations. It is a massive responsibility and one that requires the highest level of expertise and strict procedures in place to ensure integrity prevails.
Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email firstname.lastname@example.org or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.