The results are in
by Peter Switzer
The recommendations are not aggressive and ultimately left the whip for the Rudd Government to pick up to do with it what it feels like.
And while there’s an election year ahead, I don’t think financial planners nor financial institutions should expect too many lashes and pain lying ahead.
The Committee, chaired by Labor MP Bernie Ripoll, did say it wanted to stop commission-based payments. However, instead of going for the jugular, it has recommended the government work with the industry to end commission payments.
The Financial Planning Association has pledged to get rid of commissions by 2012 while the Investment and Financial Services Association has backed this for superannuation products only. This latter group represents the so-called ‘product-makers’ that really are financial institutions or mini-me versions which can pay big incentives to planners to recommend their products, or to be more precise — their funds.
- The introduction of a fiduciary duty for financial advisers.
- It was also recommended that the Henry Review consider making the cost of financial advice tax deductible. Right now, someone’s original plan is where the advice offered is not tax deductible but the ongoing service in ensuing years is! That’s crazy.
- A professional standards board to consider important issues such as lifting education standards for new financial planners and establishing clear definitions for the different types of financial planners that operate in the market, such as aligned versus independent, was also recommended.
The Ripoll Inquiry has come out very even-handed and underlined one of the biggest concerns for the industry — that high commissions or other payments are paid to planners for recommending various products.
This is how the boss of MLC, Steve Tucker, who was relatively happy with the recommendations, sees it:
“We have to move to a system where clients pay their adviser for advice and they pay administration and investment management fees to product manufacturers. Money flowing in the opposite direction between product manufacturers and financial advisers has to stop if we want to counter allegations that financial planners are a sales force, rather than a profession.”
The major problem
Do you know what’s wrong with financial planning? It’s an industry that has been non-transparent with its customers about how the product-makers rewarded financial planners. The system ignored what was potentially wrong with it, and the Storm Financial collapse and customer rip off underlined what’s wrong with some financial planners and financial planning businesses.
That’s why when I set up my financial planning business, I tried to do the opposite of the industry — rebate commissions and charge a flat fee based on the work involved. I also modelled the business on the best practice operators out there. If the Rudd Government makes some tough decisions, the industry will be better, financial planners will be better and customers will get a better deal.
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Published on: Tuesday, November 24, 2009blog comments powered by Disqus