As a Financial planner who is proud of what my colleagues, my competitors and I are able to do for our clients I have been saddened by what we heard last week at the Royal commission. The poor behaviour of the banks and AMP (who own my licensee) has cast a shadow over the whole industry.
AMP caught lying to the commission, banks use of product targets and the story of horrible advice leading to a couple losing their home. This is all a terrible look for the industry and is horrifying for people like me who strive to improve their client’s situation.
The advice industry has undergone significant change over the last 15 years with two legislative reforms in Financial Services Reform (FSR) and more recently the Future of Financial Advice (FOFA) and in my opinion is better for the changes. These reforms have seen increases in education requirements, enhanced documenting of advice and changes to remuneration for the industry. There are now strict guidelines in relation acting in the Best interest of the client and dealing with conflicts of interest. At times the administration for this can seem onerous for both advisor and client, but is designed to ensure the client is in a better position at the end of the process.
Some of the problems being revealed at the royal commission are due to institutions not dealing well with the changes to the industry. Historically the remuneration structure of the industry worked where although most of the work was done up front, b most of the income flowed for years after the initial advice. In some cases not a lot was done on an ongoing basis to earn the income. This was not a sustainable and model and has long since changed. There are a lot of legacy products that still work on this style system. This has led to the fee for no advice system that has got AMP and the banks into to trouble.
Furthermore in the past the advice fee and product fees were linked. A single fee was charged with a portion being paid to the advisor as a trailing commission. So while ever you had a product, the advisor was being renumerated for work done years earlier. Although this practice ended about 10 years ago, many products pre-date this change. These trailing commissions still exist and are a bad look, and quite rightfully provide clients with doubts.
All that said, I deal with a lot of local advisors in the area and Im very confident that almost the all the advisors in Penrith (who are my competitors) are not only ethical and operate with the best interests of their clients the heart of everything they do, they are also great at what they do!
When I started as an Advisor 16 years ago I received advice from an experienced advisor Paul Mullock who still operates today that I think about every time I sit down with a client ; “Think about the client’s dough and yours will take care of itself”. I reckon most advisors have a similar mindset despite what we heard at the Royal Commission last week.