ASIC review not dealing with structural failings of advice
Improvements to the Australian Securities and Investments Commission (ASIC) will not change the structural nature of financial planning and would be a waste of time, according to a senior industry figure.
Robert M.C. Brown, a 35-year veteran of the accountancy and advice industry, stated in a submission to the Senate Inquiry into ASIC that inquiries into the regulator "are important for the improvement of public administration, but they do not get the core of the problem" and actually create a distraction away from the underlying structural problems within financial planning.
Brown stated that despite the introduction of best interests duty, the removal of some forms of conflicted remuneration, plus tighter disclosure requirements around financial planning, has resulted in a system of commissions paid by clients instead of third parties.
According to Brown, these commissions are described as ‘asset fees' or ‘fees for service'. They are structured in a similar way to those of real estate agent commissions, where a percentage-based fee is taken from the sale price by the agent at the time of settlement.
Brown said this arrangement was steering planners away from giving advice where no asset fee could be charged — and towards products and plans where an asset fee could be charged. He said this was the result of most financial planners working within a "vertically integrated product distribution network that has no real interest in structural and cultural reform that may jeopardise the flow of product sales."
"When faced with managing a conflict between a client's long-term best interests and an immediate need to satisfy a product sales target (thereby earning a conflicted payment for so doing), the client's best interests are potentially jeopardised."
He also stated that the Future of Financial Advice changes would make only a marginal difference as it was "full of political compromises and complexities which have the unfortunate result of allowing those who do not wish to comply with the spirit of the law to not do so".
Brown stated that until the necessary structural change had taken place, the behaviour observed by ASIC and in the Senate submissions would continue — and even more proactive work by ASIC would not resolve the problems.
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