Act now on remuneration or await Government intervention: Bloch
Financial Planning Association (FPA) chief executive Jo-Anne Bloch has flagged increasing Government attention on the remuneration practices currently in place in the financial services industry.
Speaking at the PortfolfioConstruction Investment Markets Summit in Sydney yesterday, and following meetings in Canberra last week, Bloch said remuneration is now “very high on the Government’s agenda”.
Bloch said the industry must now look more closely at advice-based fees negotiated between advisers and clients, or risk the imposition of new regulations.
“We need to push this more now than ever, or we’ll end up with tough regulation that will take away the income of some planners,” Bloch said.
Bloch said the Government’s agenda includes the prospect for “more intervention on remuneration across the value chain”, as well as a continued focus on increasing levels of financial literacy.
She also said that despite previous reinforcements that RG 146 was an acceptable educational standard of entry to the financial services industry, she now believes “it isn’t”.
“The entry levels to become a financial planner are way too low,” Bloch said.
“RG 146 isn’t good enough.”
Bloch said a failure in education levels and financial literacy were two of the causes behind the harmful practices that occurred in the case of Storm Financial, along with a failure to adhere to basic investment principles.
She said the Storm case represented a “breach of investment principles, not regulatory failure”.
The FPA has conducted its own investigation into Storm. Bloch said there was “nothing inherently new in Storm”, but that “all the normal principles of investment were breached”.
“Storm pushed barriers, pushed models, pushed everything — excessively,” she said.
Bloch said Storm’s problems related not only to gearing levels, but the fact that clients had no exit plan, no stress testing took place, and no other advice was given.
Regarding the risk undertaken by clients in their investment strategies, Bloch said either Storm planners “forgot to tell clients, or clients didn’t want to know”. She said the 107-page Statements of Advice given to Storm clients were “signed and dated on every page”.
Bloch said the failures of financial education and literacy, as well as professionalism and integrity, evident in the Storm case “are very hard to regulate”.
“There’s no way in the world we could have prevented” the likes of Storm and Westpoint, she said.
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