The debate about eliminating commissions from the Australian financial planning industry will continue.
Despite extending to 246 pages, the report of the Parliamentary Joint Committee on Corporations and Financial Services (the Ripoll Inquiry) failed to advance the debate about commissions beyond the point it had already reached: industry-led agreement that advice and sales be separated and commissions phased out.
That the anti-commission forces, most vocally led by the Industry Funds Network, were dissatisfied with the overall thrust of the Ripoll Inquiry goes without saying. That their dissatisfaction was noted and understood by the Government was clearly reflected in the statement of the Minister for Financial Services, Chris Bowen, when he said the Ripoll Inquiry findings would be considered in tandem with the outcome of the Cooper Review into superannuation.
But the industry pragmatists always knew that the Ripoll Inquiry was never capable of prosecuting the agenda of the Industry Funds Network at the same time as delivering a report that carried bipartisan support.
The Federal Opposition had made it abundantly clear that it was not going to be in the business of supporting the instant banning of commissions, or of implementing the mantra of the Industry Funds Network that financial planners should have a statutory obligation to act in the best interests of their clients imposed on them.
The degree to which the Opposition parties were prepared to dig in on the issue was made clear by the Opposition Treasury spokesman, Joe Hockey, at last month’s Financial Planning Association (FPA) national conference in Melbourne, where he gave a commitment that the Liberal Party would not support the banning of commissions.
“I want to give you this commitment today,” he told the conference. “The Liberal Party will not support the banning of commissions. We will not do that.”
Notwithstanding the fact that, on the Friday of his speech, Hockey would have known the broad thrust of the Ripoll Inquiry recommendations, his statement nonetheless represented a significant moment for the financial planning industry.
It represented a signal that, in the absence of holding an outright majority in both houses of the Parliament, the Rudd Government will not be in a position to eliminate commissions in financial planning except via negotiation and agreement with the industry itself.
Not surprisingly, that is pretty much precisely what the Ripoll Inquiry has recommended — the removal of commissions on the basis “that the Government consult with and support the industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers”.
If the Industry Funds Network was disappointed with the broad thrust of the Ripoll recommendations, it was hardly as disappointed as those investors who had been burned by the collapse of Storm Financial and who viewed the Parliamentary Joint Committee as the mechanism by which the wrongs they had endured would be defined and addressed.
The problem for the Storm Financial investors and, indeed, investors burned by the collapse of Opes Prime is that the Parliamentary Joint Committee took the view that the collapsed companies were the exception rather than the rule in the financial services industry.
While acknowledging that the inquiry’s terms of reference had identified Storm Financial, Opes Prime and other similar collapses, the committee added: “It is important to emphasise that the committee is not a judicial body and has no power to make criminal findings or to make judgments in relation to individual claims that have been brought to its attention.
“It has also not been possible for the committee to resolve all the contradictions in the evidence put before it,” the report said.
“Furthermore, it should be noted that the committee’s terms of reference focused on financial products and services. The committee’s overall role, regarding what it has learnt through the examination of these corporate collapses and all the other evidence put before it, is to make any necessary recommendations for legislative change or regulatory improvement to help guard against the occurrence of similar collapses in the future and improve the quality of financial advice Australian consumers receive,” it said.
While many of the Storm Financial victims had hoped the parliamentary committee would use its report to analyse the role of the major banks in the collapse, they found themselves having to be satisfied with the fact that they were able to air their grievances before the committee under the protections afforded by Parliamentary privilege.
Equally, they found themselves having to be satisfied with the fact that some of the most senior executives of the banks involved in the Storm Financial collapse were subject to extensive cross-examination by members of the Parliamentary Joint Committee.
While the various industry groups such as the FPA, the Association of Financial Advisers (AFA) and the Investment and Financial Services Association (IFSA) broadly welcomed the findings of the Ripoll Inquiry, they would be well aware that the battle is far from over.
The degree to which the industry organisations found the report recommendations highly palatable was reflected in their willingness to embrace virtually all of its recommendations — even those about having to work more closely with the Australian Securities and Investments Commission (ASIC).
FPA chief executive Jo-Anne Bloch saw no problems with tougher licensing conditions, fiduciary obligations for planners or a strengthening of the policing powers of the regulator.
Both she and the chief executive of the AFA, Richard Klipin, were delighted with the committee’s suggestion that the cost of financial advice be made tax deductible and, with the FPA having lobbied hard on the issue, Bloch was particularly pleased with the recommendation for the establishment of an independent, industry-based professional standards board.
However, as is the case with the deliberations of all parliamentary committees, the validity of their recommendations will ultimately be measured by what the Government chooses to implement.
For his part, Bowen has made clear that while he is pleased with the general thrust of the Ripoll Inquiry recommendations, the Government will not be rushing to talk to the legislative draftsmen. Instead, he has signalled that he will be awaiting the findings of the Cooper Review and perhaps even the findings of the Henry Review into taxation.
The minister’s desire to wait for the Cooper and Henry Reviews should sound warning bells for industry bodies such as the FPA and AFA, because of the degree to which the additional reviews are likely to alter the underlying ground rules.
While the findings of the Henry Review will be fundamental to the ultimate taxation treatment of financial advice, the Cooper Review represents a genuine wild card given the peripatetic nature of its chairman, the former ASIC deputy chair, Jeremy Cooper.
While the terms of reference of the Cooper Review broadly go to examining the governance, efficiency, structure and operation of the superannuation industry, its chairman has already shown a willingness to publicly traverse a far wider area of debate. Further, even working within the terms of reference, the Cooper Review is empowered to look at financial advice in the context of super.
Looked at pragmatically, the findings of the Ripoll Inquiry must be counted as just one part of a broader legislative recipe available to the Government as it seeks not only to address the problems of the financial planning industry, but also to broadly update the Financial Services Reform Act.
However, with 2010 being an election year, the financial planning industry may have to come to terms with the sort of policy and legislative package that has as much to do with electoral popularity as the long-term needs of the sector.