Business

COMMENT

Foxes in charge of the hen house

It was supposed to be the Coalition government's panacea for the crisis in confidence plaguing the financial planning industry, but almost two years after it was launched, it's a dud.

The national financial planning register, launched in March 2015, was meant to help customers by improving transparency across the industry by tracking financial planners – and the bad apples – as they jump from licensee to licensee.

Up Next

The great student swindle

null
Video duration
01:48

More BusinessDay Videos

David Murray on ASIC initiatives: 'Adolf Hitler comes to mind'

The chair of the Financial System Inquiry and former Commonwealth Bank CEO David Murray has condemned ASIC's focus on banking culture.

Education standards, memberships and any red flags, such as banning orders, were to be included for each financial adviser. It was supposed to make it simpler.

It sounds good in theory but the implementation let it down. The register as it currently stands is patchy, inconsistent and lacks integrity, which makes it worse than useless.

The heart of the problem is that the licensees, or firms, are responsible for providing the details of all advisers they authorise to provide personal advice to retail clients.

These are some of the very same licensees who recently were found to have gouged almost $200 million from customers in fees for services not provided. It confirms the fox shouldn't be put in charge of the hen house.

Advertisement

ASIC says it is aware there are some issues with the data on the register, such as incorrect product authorisation selections and missing qualifications.

"We are writing to the relevant licensees to ask them to correct this information. We will be considering further regulatory action if these campaigns are not effective," it said in a statement.

For instance, financial planner Graeme Cowper, doesn't appear on the register at all. Cowper hit the headlines this week when he paid $200,000 in legal costs to Fairfax Media and the ABC as well as agreeing that a judgment should be made in the media companies' favour.

In his defamation case – which he surrendered - he complained it was said of him that he "ruthlessly exploited his clients for his own gain", "misconducted himself" by giving inappropriate and aggressive financial advice and manipulated documents including forging clients' signatures.

Cowper has had a checkered history. His former employer NAB filed a breach report to ASIC in relation to his misconduct in 2010 and in 2015 his then employer AMP suspended him, investigated his files then terminated him.

Cowper could theoretically go to a licensee of last resort and practice as a financial adviser and his customers would be none the wiser.

Stuart Jamieson, who was banned by ASIC in October 2015 for five years for misconduct, is another name missing from the register. So too is Hardik Bhimani, a NAB planner banned eight months ago, as well as Amanda Ritchie, an adviser from Magnitude, who was banned in October.

According to ASIC, they wouldn't be on the register if they weren't financial advisers at or since March last year. That isn't necessarily the case and it makes it confusing.

It means high-profile CBA former star planner, "dodgy" Don Nguyen, isn't there either. Nguyen's banning order will be lifted next year.

Some others do appear on the register. For instance, Alfie Chong, who was banned for five years for misleading and deceptive conduct, is on the register with a banning order.

This lack of consistency makes it hard to trust the integrity of the information.

Industry expert and the former Financial Planning Association chairman Matthew Rowe says in the US when an adviser leaves a firm the firm must lodge a signed declaration with the regulator containing detailed reasons why they left.

"It is a weakness in our system that licensees, who at the end of the day are responsible for the conduct and competence of advisers, do not inform the regulator or the register process – and hence the consumer – on whether an adviser has left for reasons of incompetence, poor compliance, professional misconduct, dishonesty or at a minimum level – breaking the law," he said.

In the case of Cowper, NAB allowed him to resign instead of sacking him, which enabled him to turn up at other financial institutions – and he did. Cowper isn't the only one who was quietly moved on instead of being sacked, effectively making the problem someone else's, without regard for the public or their social obligation.

Former CBA financial planning whistleblower Jeff Morris describes the adviser register as a placebo rather than a panacea. "It is one of a number of half measures being put forward by a government desperate to avoid the real solution of a royal commission," he said.

Another measure put forward by the government under Financial Services Minister Kelly O'Dwyer's watch is a new independent standards body to govern professional standards for financial advisers, including setting a code of ethics, developing and setting a national industry exam, including the content and process.

The big banks and AMP will bankroll the establishment of the statutory body and the minister will appoint members of the board. Both will be critical to its success or otherwise. If it isn't properly resourced, it will fall short and if the wrong people run it, it will be little more than a smokescreen.

Not surprisingly there is a lot of lobbying going on. The licencees are funding it, so Minister O'Dwyer will have to be careful not to get caught up with their aggressive lobbying of list of preferred candidates such as recently retired executives. The problem with picking such people is many have never worked as financial advisers and were part of the very system that created the problems this body is trying to fix.

Wealth is big business and the banks and AMP are the dominant players, owning or controlling more than half the financial planning industry. Over the past few years, they have been embroiled in a string of scandals, including the Commonwealth Bank financial planning scandal, cheating on professional exams at Macquarie Group by some of its advisers, and the NAB scandal, which included instances of forgery, file reconstructions and the "resignations" of financial advisers inside its financial advice arm due to conflicts of interest, inappropriate advice, inappropriate practices or repeated compliance breaches.

It is why O'Dwyer needs to pick clean skins. People who are proven change agents, well networked, have a strong grasp of professional practices, aren't aligned to an institution and who planners won't baulk at. If former executives from the big institutions appear on the board it will be more of the same.

As Matthew Rowe puts it, the proposed standards legislation is a significant step forward. But the real test now will come in the implementation. "I sense this is the last chance for Australian consumers to universally gain the advice profession they deserve compared to what has been served up by some," he said. Given the shenanigans of the past few years, it's about time customer needs were put first.

Advertisement

0 comments