Manufacturing Uncertainty
Industry gossip in Australia indicates the Rudd Labour Government has declared it wants a significant win in the financial services industry this year after a series of high profile collapses and other misdemeanours.
The consensus among the prognosticators is K-Rudd doesn’t care much about what the win is, just that there is a win or the perception of a win.
This is the sort of statement the industry feeds on, and is likely to be only one version of the truth.
What is real is that there are currently a number of significant inquiries of the Australian financial services system underway and four of them are scheduled to report before December this year – so it’s a fair bet that some significant change is on the way…
Chief among the inquiries and the one with perhaps the furthest reaching powers and potential to drive change is the Parliamentary Joint Committee chaired by Bernie Ripoll, member for Oxley (Qld) which is ready to report on November 23, and falls under the front bench auspices of Chris Bowen member for Prospect (NSW), who holds the treasury portfolio for this area.
At first glance the combination of Ripoll and Bowen seem an unlikely pairing, Ripoll is a former aircraft electrician, union organiser and took his seat from Pauline Hanson and of core Labour party stock.
Bowen is different, a labour party mayor of Fairfield and Prospect while he was still in his 30′s.
He is a member of the Labour Right and very much a man with a future inside the party so it’s likely he will be looking for a significant outcome from this inquiry.
So on the one hand we have a 43 year-old from the Labour unions and on the other hand a 36 year old who has been steadily climbing the Labour ranks via the auspices of the right.
But both want real change and given the recent history they should have every expectation that they will be able to achieve it.
The inner-circles of the boardrooms of the financial services industry are at least on the surface pleased that they have Bowen to contend with – not his predecessor Nick Sherry, who they perceived as a dyed in the wool supporter of industry funds.
Bowen, meanwhile, they see as a blank slate, a person that they can engage in serious discussions with.
The brief for change at the moment is significant, a lot of Australian’s lost a lot of money on the back of collapses of Opes Prime, Storm Financial, Timbercorp, MFS and Great Southern and there is a big expectation that real change is in the air.
What appears to be on the table and the area of most significant debate is the way that advisers are paid – under attack in particular are sales commissions, trailing commissions and the concept of asset based fees.
In very real terms there is something of a division on this – on one hand there is a reasonable case for commissions for consumers of financial services who have limited needs (usually because they have a smaller amount of assets).
Yet on the other hand there is a level of randomness in how some consumers are served and charged that makes the industry appear unstructured and therefore in some ways only has itself to blame.
In a recent CoreData focus group of High Net Worth Individuals – we asked as we always do about the fees that people were paying.
In the main the fees ranged from 0.5% of funds under management to 0.75%, but one woman, the widow of a successful property developer was paying 4.5% to her financial adviser on a portfolio of just over $50 million.
She wasn’t a fool, a trained intensive care nurse, she had taken over managing the family finances on her husbands death and being unskilled in the area had passed control to a finical planner.
On further examination it became clear in the 07-08 financial year she had paid more than $2,000,000 to her adviser in fees, a year when her assets declined in value by 17%.
It goes without saying that she has since changed her planner.
However, while there was a sharp intake of breath in the room when she mentioned how much she was paying and what she was paying for – an examination of her financial affairs revealed that the planner had been clear about what he would charge, the services he would provide and what she could expect in annual fees, there was no suggestion of fraud, but a reasonably transparent case that she was paying for services she didn’t need, want or understand.
Here in lies the rub, in all the work that we do we find that the vast majority of planners are straightforward, thoughtful and direct with the consumers that they deal with and they form relationships of real value with them.
In fact interim findings from a huge study that is in field and currently involving around 1,500 people reveals that 63.9% of those people who have an ongoing relationship with an adviser deem them their most trusted information source, when provided with a list of 13 different options.
These were:
Investment company material
Financial websites
Finance industry newspapers/magazines
General newspapers/magazines/website
Advertising
Broker/planner newsletters
Family/friends
ASIC
Other people who are more experienced
I go with my gut feeling and see as I go along
A professional adviser/planner
ASX
Blogs
The problem the industry has and we find is that every now and again instances come to the fore which reveals very poor behaviour and shocking service.
The conundrum that the government faces in these reviews is that it’s impossible to legislate against theft or dishonesty, just as it’s impossible to legislate against speeding and by attempting to do so it is possible K-Rudd and Co. in the quest for a win will alter financial planning beyond what anyone is expecting.
5 Comments on “Manufacturing Uncertainty”
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Ventego says:
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Kouba says:
Are you a professional journalist? You write very well.
Mackeran says:
Very interesting and amusing subject. I read with great pleasure.
Peter says:
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SA Planner says:
I ahve been in the investment and insurance industry for some 32 years and in that time I ahve seen many changes in legislation and for the most part these have been long overdue, particularly disclosure.
Here comes the rub, where will the government stop when it comes to remuneration by anyone who receives a commission, whether this is sales assistant, real estate investment sales, car sales etc etc.
I feel also that the smaller investor who only has perhaps $10,000 – $100,000 to invest and is charged a fee of between $660-$2,500 for an SOA etc rather than having a deverred fee via the product which deducts a small fee out over a period of time. Provided this is fully disclosed and the client knows why this is done and there is a benefit in doing so what is the difference.
It’s about time the government addressed the management, compliance and auditing of the organisations providing financial products as it was not the advisor that caused the collapse of any of these organisations.
If the advisor is provided with incorrct information from research houses, company audits and other press releases how the hell can we be laible for what I consider to be fraudulent behaviour on the part of these groups.
The advisors such as STORM should be banned as they clearly only had their own interests as the focal point. But why should the minority again affect the majority of advisors whoi have their clients interests as the main point. Many advisors have clients going back over several years with very good communication, something the bank and large institutions fail to do.
So who are the goverment really trying to help???? I think the answer again is the GOVERNMENT !!!!!!!