It’s great that the member for Oxley in Queensland, Bernie Ripoll, has got up a Parliamentary inquiry into financial planning as a result of the Storm Financial debacle that has so affected his constituents – but the time for this was years ago.
I have been campaigning in vain against the financial planning commission structure for a decade – lately through the newsletter Eureka Report.
But I have been bashing my head against a brick wall of policy apathy. Despite the obvious conflict of interest inherent in the payment of product commissions to planners who “advise” unsophisticated people about what to do with their money, nothing of any substance has ever happened.
The Minister responsible, Senator Nick Sherry, welcomed the new inquiry yesterday, but his inaction since being elected in 2007, and that of a string of Coalition predecessors, is a disgrace.
And so is the inaction of the Australian Securities and Investments Commission, the Australian Prudential Regulatory Authority and all of the industry bodies involved.
The financial planning and investment management lobby has been strong and well-funded, and has managed to repel any serious effort to clean up their industry and impose a framework of “client first” fiduciary duties on them.
If Sherry really believes that it’s a good idea to look into “the role played by financial advisers, current remuneration structures such as fees and commissions, and the current regulatory environment, including licensing arrangements, for providers and advisers”, as he put in a press release yesterday, why on earth hasn’t he done anything about it himself before now?
It is all very well supporting the Member for Oxley’s initiative, but he is the Minister!
In fact, I interviewed Nick Sherry for Eureka Report on this subject shortly before he took over in 2007, and he explicitly declined to do anything about financial planning commissions.
“It’s far too difficult practically”, he said. “I want to focus on disclosure.”
And so he did. That went well didn’t it, Storm, Westpoint, Lift and Opes clients? Greater disclosure was always a hopeless way to deal with conflicts of interest in financial advice, because the more there is of it, the less likely clients are to read it, or understand it if they bother to read it.
Commissions must be banned – it’s as simple as that. It’s not just the big collapses like Storm that are the problem, but the steady bleeding of Australians’ savings into excessive and wasteful management and advisory fees. Banks and other financial product manufacturers must also be prevented from owning financial planning networks to distribute their products.
But the time to do this was during the boom, when percentage commissions could have been reduced without undue suffering among advisers.
Now investment returns have collapsed along with funds under management. According to data out yesterday from the ABS, assets under management in Australia fell in 2008 from $1.013 trillion to $868 billion.
That means income to the financial services industry has been cut by a quarter simply because of the decline in the markets.
Planners and fund managers are now desperately trying to get their percentage commissions up, not down, and will redouble their lobbying efforts to blunt the impact of the latest Parliamentary inquiry.
But this time angry clients such as those who lost everything with Storm will also support the move against commissions.
It should be a lively and ultimately decisive debate.
This article first appeared on Business Spectator.