At the Australian Securities and Investment Commission (ASIC) Annual Forum in Sydney this week many sessions focussed on the question of financial advice and whether ordinary Australians could trust planners with their savings.
Two sessions, in particular, poked the ‘elephant in the room’. The first was the Monday night panel which posed the question; ‘Can the financial services sector regulate itself?’ Panellist Dimity Kingsford-Smith, Professor of Law at the University of NSW, concluded that while the financial industry was good at using self-regulation to make rules, it was not good with supervision or enforcement. Professor Kingsford-Smith noted that existing remuneration structures continue to pull against (planners) doing the right thing. Shane Tregillis, Chief Ombudsman, Financial Ombudsman Service said a blunt “no” to this question, stating, however, that formal regulation is not working entirely well either. Financial services should be about the interests of the consumer, “but the consumer is never at the table” he noted. And the third panellist, Elmer Funke Kupper, chairman of the Australian Stock Exchange Limited said “finally it has to come down to penalties .We need to make it very strong and very personal, by sending one or two CEOs to jail”.
A special session on Tuesday asked what was the role of trust in the financial industry. Participants were Adele Ferguson, award-winning journalist with Fairfax Media who pursued the CBA financial planning scandal, and former CEO of the Financial Services Council, John Brogden. Mr Brogden declared that self-regulation had not worked and there remained a need for the government to play this role, but that a Royal Commission into the financial planning scandals was not necessary. Adele Ferguson felt that the regulators had been revealed to be “asleep at the wheel” and needed to be more proactive, to have a stronger enforcement policy and that the penalties are “pathetic”.
She also pointed to the low level of compensation for victims of planning misdemeanours. In a culture where retirees ‘have to look after themselves’, they still need financial advice but in order to rebuild trust, the industry needs to compensate victims properly. Recent ASIC research found that 37 per cent of advice had been in breach of the law, so consumers remain at risk.
Read more at www.ASIC.gov.au.
Our research underscores the positive experience most consumers have with planners, but the industry remains conflicted and a Royal Commission is the only way to shake out the bad apples and move on.
Research conducted by YourLifeChoices reveals that, of the 60 per cent of our respondents who have seen a planner, 75 per cent had a positive experience. Most Australians now realise they are well and truly on their own when it comes to creating a nest egg for their retirement. Many also wish to seek professional advice to help make the most of their hard-earned savings. But of our five largest banks, four (CBA, NAB, ANZ and Macquarie) have experienced major planning scandals – white-collar crime – in the handling of their customers’ retirement income savings. So it is little wonder that trust is at an all time low. The banks insist they can handle these matters themselves with internal investigations and that they will punish the wrongdoers and compensate the victims.
They don’t. Adele Ferguson has noted that the miscreant CBA managers are now operating in senior roles in other organisations.
As reported above, many panellists at this week’s ASIC forum confirmed the need for a Royal Commission in order to deal with the ‘rot’ that has been allowed to flourish within the industry and to restore consumer confidence.
Nothing less will do the job. We supposedly have one of the best financial systems in the world for saving for retirement. It is high time the regulator and the government had the courage to take on the Big Banks to make it the best system in the world for consumer security. This involves a total revamp of the culture and a dramatic raising of the ‘low ethical bar’ we have set.
What do you think? Are our financial institutions capable of cleaning up their act? Or do we need a Royal Commission to reveal worst practice and set in place conditions to ensure this does not continue? Do you agree that the penalties are ‘pathetic’ and that sending a few CEOs to jail would help to raise ethical standards amongst financial planners?