The financial planning industry would be subject to higher professional standards overseen by an independent, industry-based Professional Standards Board. Planners would have a “fiduciary duty” to place their clients’ interests first. Licensing would be more onerous and the regulator would have more power, if the Government accepts the recommendations of the Ripoll Inquiry.
Importantly, the inquiry has recommended a consultative and industry-based approach to removal of payments from product manufacturers to planners.
The inquiry’s findings, which stop well short of the draconian approach recommended by some, were last night welcomed by the Financial Planning Association (FPA) chief executive, Jo-Anne Bloch as “sensible” and “practical” but the Industry Funds Network maintained its call for the Government to impose tougher duties on planners.
The final report of the Parliamentary Joint Committee on Corporations and Financial Services also surprised because it did not accept that Storm Financial was necessarily representative of the broader financial planning industry or indicative of the need for radical change.
Bloch said the FPA welcomed the imposition of a fiduciary duty on planners and was strongly supportive of the establishment of an industry-based Professional Standards Board.
She said there was much in the Committee’s recommendations, including making the cost of financial advice tax-deductible, which had been the subject of lobbying on the part of the FPA and they were therefore very welcome.
The Committee made 11 recommendations and the Federal Opposition spokesman on financial services, Chris Pearce made clear that they carried bi-partisan support.
The 11 recommendations were:
– Amendment of the Corporations Act to explicitly include a fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients’ interests ahead of their own;
– The resourcing of the Australian Securities and Investments Commission (ASIC) to perform effective risk-based surveillance of the advice provided by licensees and their authorised representatives, including shadow shopping exercises;
– Amendments to the Corporations Act requiring advisers to disclose more prominently in marketing material restrictions on the advice they are able to provide consumers and any potential conflicts of interest;
– Government and industry action to cut payments from product manufacturers to financial advisers;
– Government consideration for making the cost of financial advice tax-deductible;
– Extension of the Corporations Act to extend the powers for ASIC to ban individuals from the financial services industry;
– An obligation on agribusiness Managed Investment Scheme licensees to demonstrate to ASIC they have sufficient working capital to meet their obligations;
– Amendments to the Corporations Act to allow ASIC to suspend and cancel licenses where there is a reasonable belief the licensee may not comply;
– That ASIC begin immediate consultation with the financial services industry on the establishment of an independent, industry-based professional standards board to oversee nomenclature, and competency and conduct standards for financial advisers;
– Investigation of the costs and benefits of different models of a statutory last resort compensation fund for investors; and,
– That ASIC develop and deliver more effective education activities targeted to groups in the community who are likely to be seeking financial advice for the first time.
