Selling a new fees structure

After the hundreds of thousands of words received by way of submissions, and the endless hours of input gained by way of committee hearings, it is reassuring that the chairman of the Parliamentary Joint Committee on Corporations and Financial Services, Bernie Ripoll, has indicated that he really does understand the issues.

Ripoll, who has become something of a staple at industry conferences this year, told this month’s Association of Financial Advisers (AFA) conference on the Gold Coast that his committee’s ultimate report to the Parliament was likely to recommend changes to the financial planning licensing regime that clearly delineates planning from product selling.

Ripoll pointed to the inherent shortcomings that were likely to flow from “one single framework that is meant to distinguish somehow all of the services that are provided in a massive sector, as well as all of the different people and all of the different levels of expertise”.

Reading Ripoll’s comments or listening to them at the AFA conference, many financial planners would be inclined to regard them as a statement of the ‘bleeding obvious’, but the Parliamentary Inquiry could not be deemed a success if it did not ultimately identify the bleeding obvious and then frame its recommendations to the parliament accordingly.

However, it is one thing to identify the inherent conflict that can exist between providing independent advice and recommending financial products, but entirely another thing to then create a licensing system wherein such functions can be sensibly, functionally separated.

Given commissions directly relate to product sales, some might question whether the Government would seek to use a new licensing regime to force financial planners on to a pure fee-for-service regime while, at the same time, precluding product floggers from providing advice.

What needs to be remembered, however, is that the creation of a multi-faceted licensing regime would also give rise to an increasingly multi-layered and hierarchal financial services industry, and one within which relationships between planners, dealer groups and product manufacturers would necessarily be fundamentally altered.

It might also be said that any such change to licensing that separates the provision of advice from product flogging would also raise questions about the employment of financial advisers by superannuation funds, which, at their base, can also be described as product manufacturers.

While the legislative and regulatory equation becomes even more complicated if intra-fund advice is considered, it must be assumed that the Government will stick to the view that such advice will always be largely single-product specific.

In circumstances where the financial planning industry has developed under a single licensing framework, Ripoll’s comments may be the harbinger of significant structural and commercial change.

— Mike Taylor