More shocking than a collapse

The testimony of the head of an industry body was even more alarming than a witness being carted away in an ambulance.

Asked to choose the most alarming sight at the Bank Inquiry today it would be a photo-finish between financial planner Terry McMaster being taken away in an ambulance (after collapsing in the witness stand) or the CEO of the Financial Planning Association Dante De Gori trying to explain why the spectacular failings of celebrity financial planner Sam Henderson were kept from the public.

De Gori, the head of the peak body for financial advice and the provider of the most elite financial planning qualification in the market, has to win this gruesome competition.

Why? Because the FPA is a key player in how the wider financial advice system actually operates.

In contrast, McMaster runs Dover, a mid-sized planning firm from an industrial estate in outer Melbourne.

It is clear from today’s evidence — especially Dover’s habit of hiring planners who had run into trouble at other firms — this group has a lot of issues yet to explain. But Dover Ltd alone will not undermine confidence in the system. The upkeep of the system is the job of regulators and professional leaders such as the FPA.

Explaining the FPA’s reticence in naming Henderson to the wider public, De Gori explained the FPA complaint procedures were not complete. He also added that naming Henderson — who gave ‘risible’ advice which would have cost Fair Work Commissioner Donna McKenna $500,000 — would damage the FPA’s relationship with other members. (Evidence of Henderson’s bad advice were finally made public by the inquiry earlier this week).

There are two huge problems increasingly apparent with financial advisers before the inquiry. How they offer advice and how their behaviour is regulated by their overseers.

The FPA is part of the problem and the problem is immense.

What’s more, there is concern that new rules for financial planners currently before the government could easily allow the sort of scandals we are hearing about every other day to continue well after the bank inquiry has wrapped up.

June 26, 2014

Royal Commission timeline

The Senate economics committee calls for a royal commission following a lengthy inquiry into ASIC’s performance that focused on financial planning scandals at the CBA.

April 21, 2016

Royal Commission timeline

In an attempt to stave off continuing calls for a royal commission, the Australian Bankers Association announces former senior public servant Ian McPhee will oversee an overhaul of industry standards and practices.

November 30, 2017

Royal Commission timeline

After years of denying a royal commission is needed, the banks write to Prime Minister Malcolm Turnbull asking for one. He obliges.

February 12, 2018

Royal Commission timeline

Commissioner Kenneth Hayne formally opens the inquiry and sets the tone by laying into the big banks for failing to provide all the information he wanted in time.

March 13, 2018

Royal Commission timeline

The commission’s first full public hearings hear about consumer credit issues including a home loan fraud ring among NAB bankers in Western Sydney and out-of-control mortgage brokers at CBA subsidiary Aussie Home Loans.

April 16, 2018

Royal Commission timeline

Second round of hearings kicks off with a focus on one of the industry’s most scandal-prone sectors, financial planning.

The much needed attempt at new rules — created by the Financial Adviser Standards and Ethics Agency ‘ — have been blasted as unworkable and flawed in creating high hurdles for new financial planners while ignoring existing experience.

Andy Semple, the chairman of the Association of Securities and Dealer Advisers Australia,

suggests the new rules — which are to be administered by ASIC — are wide open to avoidance and exploitation.

Semple says that all a financial advice firms would have to do to sidestep the new rules is to reclassify their advice from ‘personal’ to ‘general’ and they will be exempt.

Banking Royal Commission

What it means for the banks

Opposed by the banks right up until the moment they asked for it in November, the commission presents both obvious dangers and hidden opportunities to the sector.

Their already-battered public reputations have taken further hits and commissioner Kenneth Hayne has mulled the prospect of tighter regulation.

Some of the worst areas exposed by the commission so far - particularly the commissions paid to car dealers and mortgage brokers - are areas where some banks would like to see a crackdown, but lack the guts to take action that would put them in danger of losing market share.

New regulations cutting mortgage broker commissions, for example, would allow the banks to compete on a level playing field while crushing an industry they have allowed to steal away half of all home loan sales.

“The lines between personal and general advice is a grey area, everyone knows that and it’s exactly what firms will start thinking about.” says Semple.

Firms taking advantage of the new FASEA regime — putting their advisers under general rather than personal advice licence terms — will also pay less in compliance costs to ASIC.
A move which could seriously dilute funding to the agency which pulls in more than $900m each year in fees and charges and hands over more than $600m to the government.

FASEA wants all advisers to attain either a new Graduate Diploma in financial advice or to have a bachelor’s degree in a related subject combined with a “bridging course”.

The foundation CEO at FASEA, Deen Sanders, recently resigned unexpectedly from the top job after less than seven months. FASEA has hired executive recruitment agency Egon Zehnder for a replacement in what might now be one of the toughest jobs in Australia. Self regulation is not working in the financial advice sector, poor education levels are everywhere on display and reform efforts now appear entirely unconvincing.