… that is, Nick Sherry, the Assistant Treasurer, and former Minister for Superannuation and Corporate Law.
Senator Sherry has stood his ground against the mighty force of the financial services industry and it appears… hopefully, eventually… if the planets align, that his courage and leadership will dismantle the outdated and inappropriate structure of commission-based remuneration for financial advisers.
Chris Bowen is now the Minister for Financial Services, Superannuation and Corporate Law and driving any future financial services reform, but it was Senator Sherry’s leadership that successfully pushed to the top of the policy agenda the issue of conflicts of interest when financial advisers are remunerated (in the form of upfront and ongoing commissions) by the provider of the investment products.
For years the financial services industry, the former Liberal and Labor Governments and even the regulator, ASIC and its predecessor, the ASC, turned a blind eye to the rampant skimming of additional fees from investment products which were then redistributed to financial advisers as a lucrative source of passive income; otherwise known as trailing commissions. It was a great lurk until commentators and consumer groups started questioning the merits and quality of the advice provided by such ‘advisers’.
Over the years, many independent voices have called for the banning of commissions (including the voice of yours truly), but the coming together of the financial crisis, the financial advising/commission debacles of Westpoint, Storm and Timbercorp/Great Southern Plantations have created the perfect storm (an accidental pun) for the pro-active leadership of Nick Sherry and now Chris Bowen to drive necessary change through the financial services industry.
Financial services industry dragged its heels
If the Government decides to scrap the current advice system and start afresh then the broader financial services industry has itself to blame. The financial services industry has failed to show moral leadership on this important issue with the exception of a few independent advisers and the industry super network. The agitation for change has fallen to journalists and commentators and consumer groups.
It was the perceived threat of forced regulation that prompted the Financial Planning Association and the financial services lobby group, IFSA, to capitulate on the ‘house’ view on commissions (that is, commissions are okay) and to finally accept that commissions would need to go, eventually, sometime in the future on most products.
While nearly every industry association involved in super is now issuing media releases proclaiming the need to remove commissions associated with financial advice, the industry is offering too little too late in its efforts to change a remuneration system that was originally designed around product selling rather than the provision of financial advice.
Not in the best interest of clients
Get this: the industry is discussing and mulling over the implications of financial advisers being forced to act in the best interests of clients, because the rules currently don’t require them to do so. Give me a break! If the system is this broken then the Government has no choice but to toss it aside and start again.
As usual, I expect to receive a handful of vitriolic emails about me trashing financial advisers and what about the good advisers out there. Yes, what about the good advisers out there?
If I were an adviser who acted in the best interests of my clients, and who charged a fee or retainer or other type of fee structure that was not linked to selling product, I would not want my reputation to be tarnished by an industry that is addicted to commissions and clogged with conflicts of interest. Sadly, the minority of advisers charging fees have not stood up and taken control of their industry.
Consumers are entitled to independent advice, and of those consumers receiving financial advice, I have been told most are accepting advice from advisers paid by commissions – not so independent.
Despite what sections of the financial services industry will claim in newspaper interviews, TV ads and in submissions to Government, commissions paid to financial advisers for selling investment products cannot be dressed up as retirement planning advice, or investment advice.
Senator Sherry, on the issue of independent advice and commissions, you have demonstrated political leadership and moral courage against the might of a powerful industry.
Thank you. Now, perhaps you can have a word with your parliamentary colleagues about the halving of those concessional contributions caps…