There needs to be an irrevocable break between advice and product in the financial planning sphere, according to a new white paper written by three prominent financial advice figures.
The white paper, written by Fortnum Financial Group executive chairman, Ray Miles, Innova Asset Management managing director, Dan Miles and consultant, Jim Stackpool has called for the abandonment of all sales incentives as it seeks to explain the reasons why Australians do not trust financial advisers.
Further, the white paper warns that the Government’s current round of legislative and regulatory changes seem unlikely to fix the underlying culture giving rise to the industry’s problems and poor public image.
The trio claim in the white paper that the majority of advisers are still distributors of financial product because there has been no fundamental change or improvement to the industry’s culture and practises in the last 20 years, despite numerous parliamentary inquiries and reforms.
“In the aftermath a several recent advice scandals, it’s clear culture isn’t a passing fad,” Stackpool said.
“Culture is a fundamental driver of behaviour and trusted advice which is why the latest round of government reforms won’t propel the industry forward or lead to better client outcomes.”
He said risk commissions, volume rebates, complex buyer of last resort arrangements, and other incentives including discounted bank fees, lower insurance premiums, transition payments, discounted licensing and dealer services, and free tickets to major sporting events still existed, which perpetuated a culture of selling and not of professional, objective advice.
Innova’s Dan Miles said that while quality, client-centred advice was flourishing in parts of the industry, deeper public understanding of the financial planning process, and what financial advisers did and did not do, was required in order to help consumers more easily identify rogue advisers.
The white paper also calls for a clear separation between financial advisers and product distributors by labelling anyone who is paid based on the sale of a product or who ties the value of their business valuation to a product manufacturer’s buyer of last resort (BOLR) contract to be called a product provider.
Fortnum’s Ray Miles said the advice industry needed to focus solely on solving the client’s problems, and in doing so, would ultimately solve its own.
