New white paper finds culture is the most critical issue for the advice industry
Three prominent financial services professionals have banded together to launch a new white paper detailing the key reasons why Australians don’t trust financial advisers, and what must urgently happen to create real and positive change so more people seek and receive quality advice, ahead of the next inevitable market downturn.
Titled, And the walls came tumbling down: Why the industry must build a new foundation, the paper’s authors: Ray Miles, executive chairman of Fortnum Financial Group; Dan Miles, managing director of Innova Asset Management; and leading consultant Jim Stackpool, have called on the industry to separate financial product from financial advice; abandon all sales incentives; and build a new advice culture.
According to the paper, 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. 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 exist, which perpetuate a culture of selling and not of professional, objective advice.”
While quality, client-centred advice was flourishing in parts of the industry, Dan Miles, managing director of Innova Asset Management, said a deeper public understanding of the financial planning process, and what financial advisers did and didn’t do, was required in order to help consumers more easily identify rogue advisers.
The report also called 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 BOLR contract to be called a product provider.
“The new generation of professionals are reinventing the advice process so it isn’t linked to product but is purely about uncovering a client’s true goals and objectives, showing them what’s realistically achievable given their situation, what they need to do to achieve their goals, how to manage risk, and keep them on track over the long-term to maximise the chances of success,” Dan Miles said.
The new paper, which is a follow-up to the controversial ‘The sky is falling’ paper, concludes by detailing how the industry can earn the trust of consumers.
In addition to being more transparent and spearheading sensible reforms, Ray Miles, executive chairman of Fortnum Financial Group, said the advice industry needed to focus solely on solving the client’s problems, and in doing so, would ultimately solve its own.
“Trust will happen, or begin to return if you believe we ever had it, when clients believe that financial planners are working in their best interests and the industry is structured to protect them, and it isn’t right now,” he said.
