For a financial services industry suffering the harsh glare of a Royal Commission, the future resides in pursuing professionalism and excellence.
This edition of Money Management celebrates our annual Fund Manager of the Year Awards conducted with our research partner Lonsec, but it occurs at a time when the Australian financial services industry has never been under greater scrutiny or the subject of greater criticism.
Thus, the excellence that we celebrate in recognising the best of the best in the funds management arena, is overshadowed by the reality that significant failings have been identified, which must be addressed if the industry is to have any hope of regaining and maintaining the confidence of Australian investors.
Notwithstanding all the adverse testimony which has been given to the Royal Commission to date, it would be wrong to lose sight of the fact that the vast majority of participants in the Australian financial services industry strive to do the right thing – something evidenced by the returns generated by the fund managers recognised at this year’s Awards and the winners of our Financial Planner of the Year and Paraplanner of the Year Awards.
But there can be no denying that trust has been lost and that trust must be re-earned. Thus, the financial services industry must try harder to become more professional and to measure up to community expectations.
One of the most disturbing things to emerge during the Royal Commission was the degree to which major institutions such as AMP Limited and the banks had sought to leverage the remaining vestiges of the pre-Future of Future of Advice (FOFA) regime – particularly the trailing commissions – to maintain their wealth revenues.
That must stop. Irrespective of the legal niceties, the evidence produced at the Royal Commission dictates that those pre-FOFA practices must be abandoned in much the same way that the legacy products which evolved out of the pre-FOFA regulatory environment must also be updated or abandoned.
Before, during and after the FOFA reform process many senior bank executives were readily spruiking the virtue of moving away from commission-based remuneration and embracing fee-for-service. The hypocrisy of those claims has been laid bare by the Royal Commission’s finding that commission-based revenue still makes up nigh on 50 per cent of wealth management revenue.
What needs to be understood about the Royal Commission’s terms of reference is that there is much more to come. Over coming months, the same inquisitorial focus which resulted in the exit of both the chair and the chief executive from AMP, will be applied to the big life insurance companies and the major superannuation funds.
Those who have worked in the financial services industry for many years know that insurance and superannuation industry executives will feel no more comfortable in the witness box than did their wealth management counterparts at AMP, the Commonwealth Bank, Westpac, ANZ and National Australia Bank.
The Australian financial services industry can and will recover from the Royal Commission and it is to be hoped that it does so via the professionalism and excellence exemplified by the companies and individuals who have been awarded at this year’s Fund Manager of the Year Awards.