PUTTING FIRST THINGS FIRST
In the wake of the Commonwealth Bank saga both government and industry are making the same noises they’ve been making for nearly two decades now, only louder. It’s time for a different approach.
US President Dwight Eisenhower said “what is important is seldom urgent and what is urgent is seldom important”.
How does this relate to financial planning?
The financial services industry is reeling at the moment in the wake of the Commonwealth Bank affair, the most recent in a lengthening line of scandals that erodes public confidence in financial planners. What’s interesting is how this has come about.
Industry’s solution to the problem of Australians losing money to bad advice has been to promote an attitude of professionalism and encourage higher learning.
By comparison the government’s solution was to increase disclosure (Financial Services Guides, Statements of Advice, and Product Disclosure Statements).
Trouble is: they aren’t the ones who are bleeding. The Australian purse has bled from scandal after scandal over the last decade.
The Government’s ‘more disclosure’ solution simply hasn’t worked. Nor has the FOFA proposals that were designed to increase adviser accountability; they didn’t even make it to the finish line. So too, industry’s push for professionalism and education is too slow a burn to solve with the crisis.
In the wake of the most recent Commonwealth Bank saga both government and industry are making the same noises they’ve been making for nearly two decades now, only louder. The government has proposed 61 recommendations to fix the problem. Industry’s multi-point action plan is likewise last decade’s thinking.
It’s a funny thing. 50 years ago when Martin Luther King climbed up to the podium, he didn’t announce a ‘ten-point plan for solving racial inequality’. He said “I have a dream” and he shared his vision for a very different future. What is long overdue is not more of the same thinking and what is required is a complete change in thinking.
The string of scandals has a common theme: conflicts of interest. Removing conflicts doesn’t turn sloppy advice into good advice but it does do a lot of the heavy lifting for you. Certainly ASIC has verified that-in 15 years of ‘mystery shopping’ financial planners- the presence of conflict does erode the quality of advice. The government’s inquiry that was released last month (like the one released in 2009) drew the same conclusion.
So if we’re going to put first things first, what’s wrong with starting there? What if we changed the rules of the game? Imagine a world where it is illegal to ‘advise under the influence’ of a conflict?
We’d need to train a whole generation of independent advisors on how to make a living by giving conflict-free advice, devoid of product. How simple is disclosure going to be? How interested in professionalism and education are they going to be? How competent and skilled are they going to be?
Of course it will require different thinking. Of course banks and insurance companies aren’t going to like it. And of course it means separating the sales industry from the advice profession, and this isn’t going to be popular with industry.
But that doesn’t make it unimportant and it is most certainly urgent. Just ask any Westpoint investor or Storm client.
As financial advisers we perform a role other professions don’t. We have conversations with our clients other professions can’t. We are agents of change for our clients and it’s our job to lead them to a better, brighter, more secure future.
This visionary stuff is second nature to us. It’ll be a walk in the park.
Will be? Is.
The IFAAA’s Gold Standard of Independence was our dream to puts first things first. It’s not a dream anymore.