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Financial product manufacturers want to control advice – not likely

John Hewison
Founder and Director
29 Sep 2014

We have seen the Future of Financial Advice (FoFA) legislation ban commissions, kickbacks and incentive payments; essentially the control mechanisms of financial institutions and product manufacturers. We have also witnessed the recent controversy surrounding the quality of advice resulting from sanctions issued by the corporate regulator, Australian Securities and Investments Commission (ASIC) to Commonwealth Bank and Macquarie Bank, which has resulted in a further investigation by the Federal Government’s Financial Systems Inquiry (FSI).

So wouldn’t you know it, the industry body for fund managers and major institutions, Financial Services Council (FSC), has made a submission to the FSI suggesting that a new body be established titled the Advice and Competency Board. This body would combine the legislative and regulatory powers of ASIC and the Tax Agent Services Act, together with representatives from AFS licensees.

Of course this initiative is to be funded by members of the FSC, the major institutions that are riddled with conflicts of interest and driven by product sales to gain funds under management.

From the perspective of an independent private wealth firm, this is a joke.

I have been in the financial services industry for 30 years. Prior to this, I came from a corporate management background and couldn’t understand the concept of financial product manufacturers controlling the remuneration of advisers via the commission system. However, I quickly discovered that institutional dealer groups and fund managers saw the advice profession as its retail sale force and needed to control the deal -flow.

The FSC and its membership are desperate to retain control over the deal-flow without the slightest regard for the sanctity of the client/adviser relationship and or their clients’ best interests.

Institutions are driven by Boards who are held to account by shareholders to generate profits. What is good for the client comes way down the pecking order. This is the reason for failure of previous attempts to consolidate and corporatise professional advice practices; the two have completely different sets of principles and objectives.

The Financial Planning Association of Australia has worked tirelessly to drive ethics and professional standards, education standards and consumer protection mechanisms in Australia. In fact, the FPA is considered a world leader in this regard. The mechanisms are in place for co-regulation via an existing highly credentialed professional body, whose membership consists of individual professional financial advisers who sign up to a set of education standards and professional principles. These standards and principles focus on the individual client’s best interest being placed before and above any other factor.

The time has come where the Federal Government must act to separate professional advice from product sales. Every Australian consumer deserves untainted, non-conflicted, solely client-focused financial advice from appropriately educated professionals.

The FSC should realise that its business model is broken and look to other ways to “sell” its product, based on quality and outcomes rather than bribery.

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 info@hewison.com.au 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.