Why the financial advice crisis never stops

A spate of sordid stories from the financial-advice sector begs the question if much has changed since the royal commission inquiry four years ago.

Terry McMaster leaves the Federal Court after collapsing during the banking royal commission. Picture: AAP

Imagine for a moment you are a new investor in the Australian market seeking advice.

You could only be shaken by the run of new scandals in the industry, which are stunning even by the lofty standards set by this sector in the past.

It’s a roll call of shabby practice at every level. We have the notorious conwoman Melissa Caddick, who allegedly stole up to $25m in a Ponzi scheme and is now the subject of a television drama.

There is Dominique Grubisa of the DG Institute, hit with a four-year ban this week after the regulator found her to be lying about holding financial service licences. That’s the woman who was recommending clients study Family Court data to “identify people in financial distress”.

Then we have stockbroker Kristofer Ridgway, sacked by Shaw and Partners for allegedly diverting $3.5m of client money into “unrecommended products”.

Dominique Grubisa.

Melissa Caddick.

And let’s not forget Macquarie Bank – on Tuesday this week we heard that the regulators are suing the bank for failing to prevent nearly $3m of withdrawals from cash management accounts by a convicted former financial adviser Ross Hopkins.

Some of these people were qualified and licensed financial advisers; others were not advisers but posed as such and did much damage. Either way they have combined to put the issue of financial advice back in the headlines for all the wrong reasons.

Less than four years ago the biggest review of financial advice in a generation took place with the Hayne royal commission, which had its own litany of fallen financial planners. Who could forget Terry McMaster leaving the inquiry in an ambulance or media celebrity Sam Henderson’s woeful ways being revealed by Justice Hayne and his team?

Has anything really changed?

To be fair, it’s not that nothing has been done to improve things in recent years – there has been a genuine lift in education standards for advisers, tighter responsibilities imposed on the profession and the worst commissions have been eradicated.

In fact, the total number of financial advisers across the market has fallen from 24,000 to around 17,000 now.

Looking even deeper into the investment world, we find that there are serious problems even within the professional community surrounding more than a million investors involved in self-managed super funds.

Unlike most areas of investment activity, SMSF investors are policed to within an inch of their lives because the Australian Taxation Office is both the tax collector and the regulator (big super is policed by the Australian Securities & Investments Commission).

Financial advisers to SMSF operators (trustees) depend on audited annual accounts. Likewise investors depend on auditors to check on advisers – this was a major issue in the Caddick case, where what looks like spectacularly fraudulent accounts were signed off by auditors every year.  This week the ATO let it be known it has just completed a review and subsequent purge of auditors that sign off on SMSF funds.

The tax office has penalised 18 auditors that had been auditing each other’s personal SMSFs and then went one step further in ­deregistering another 12 for other failings.

So let’s put it this way: if things have improved in a very general way in terms of overall standards since the Hayne commission, the capacity for eye-popping scandals throughout the advice scene has not wilted a jot.

The government has recently launched a “quality of advice” review led by lawyer Michelle Levy. The review sounds promising until you realise that it has more exclusions than the GST. Hopefully the inquiry will cut red tape and make some advice more affordable to everyday investors, but it will not be looking at professional standards among advisers.

Meanwhile, the issues that fall through the cracks in financial advice widen each day – even since the Hayne royal commission we have had the emergence of cryptocurrency, which is currently outside the system.

Not to mention the boom in so-called “finfluencers” who collect supporters on social media – though it does seem like ASIC is moving behind the scenes to plug the worst offenders in this space.

Unfortunately what all this means is that good advice continues to be reserved for those who can pay $3500 a year – and have the skills and network to find a good adviser who is, at the very least, listed as a qualified adviser on the ASIC financial adviser register list at Moneysmart.gov.au.

The Australian publishes a list of the top 100 financial advisers each year, but in the end that’s just 100 people in an industry where 17,000 operate. As financial advice becomes more expensive, the adviser population shrinks and there is precious little evidence that the industry is any less prone to scandal as it was before the Hayne royal commission. It is clear the system is broken.

On the Money Cafe podcast this week I talked with Doug Turek of Professional Wealth, an adviser who has made it into the top 100 list every year since it started in 2017. He believes that general standards in financial advice have improved but thinks the huge reduction in the number of active planners is bad news.

He reckons that regulation can only go so far – “I’m sure back in ancient Egypt there was some adviser there cheating some client out of their gold” – and then throws a curve ball: “Maybe there is an agenda in government to stop people getting advice to learn how to pay less tax, or to get more super or get more age pension!”

Looking at what happened in recent weeks, you could be forgiven for thinking that’s the case.