Judgement Day: one year later...

The findings of the 2003 Australian Consumers’ Association/Australian Securities and Investments Commission(ACA/ASIC) report into the quality of advice may have shocked many industry players, but not theFinancial Planning Association(FPA).

The FPA’s general manager policy and regulations, June Smith, says the association has had a national quality assessment program running for a number of years now, so the results of the survey came as no surprise.

“In November 2002 we released findings of our own that almost exactly mirrored those of the ACA/ASIC report,” she says.

Was the industry “structurally corrupt”? To that, Smith says there was a lot of emotional language being used at the time of the report’s release. However, she does say that the report highlighted the fact there were issues in the industry that simply had to be dealt with.

Smith says the FPA’s Professional Partnership Program, introduced in response to criticism of the industry levelled by the ACA/ASIC report, isolated five key issues:

1. disclosure and payment structures;

2. quality of advice;

3. transitioning to the Financial Services Reform Act (FSRA);

4. professionalism; and

5. understanding and delivering what the consumer wants.

Smith says while the FPA is tackling the issues head-on, the industry is “not there yet”. But, “there is a momentum towards change and that is growing every day”.

There’s no argument that the FPA, in conjunction with other industry players, has put a program for reform in place [see box], particularly in the area of soft dollars and disclosure.

Smith says the ACA/ASIC report highlighted the fact that “there was a perception in the community that the industry’s payment structures were influencing product recommendations — and whether or not that was fact or perception is largely irrelevant”.

“I think the industry has definitely heard the message that consumers and other stakeholders believe there is a distinct and direct relationship between the payment structures of the industry and the product recommendations that are made by advisers.

“That is the message that has been taken on board and the FPA has come up with a tangible way of resolving those issues.”

And on that thorniest of issues, the FPA in conjunction with the Investment and Financial Services Association (IFSA) released a draft code of practice in December, euphemistically called ‘The Draft Code of Practice on Alternative Remuneration Payments’ and will also release an issues paper next month dealing specifically with adviser/dealer remuneration.

Smith says that the FPA is proposing that “some forms of payments be banned, that others find their way onto a public register and that all payments that have to be disclosed under the FSRA be done in a far more effective, concise way, with universal terminology that is used by everybody”.

Ross Johnston, executive general manager, financial advisory solutions with IWL, is working with dealer groups to help them find technology-based compliance solutions.

He says the survey sample was very small and therefore, it could be argued, the findings might have been a bit unfair.

“It’s very easy to taint an entire industry from a very small sample.”

However, he also says a number of things came out of the report that the industry can learn from.

“I think most people recognise a number of the issues identified in that report were real issues in a number of dealer groups.”

As a result, he says there has been a real focus from the industry in general and the dealer groups in particular, on compliance and solutions.

“I think the industry is taking it very seriously.”

One of the side effects of the report, says Johnston, has been that dealer groups now feel the need to have more control over their advisers.

“Where we are seeing a real change is where dealers really want central control — especially large dealers. When you think about it, how can they ensure that people going into their Perth office are getting exactly the same standard of advice as people going into their Sydney office? They really have to try to get that central control over all of the processes. I think that’s really a key to winning back consumer confidence.”

Johnston says technology can help dealers to do that — especially online technology.

“One of the beauties of online is that it really does give you that central control,” he says.

“Where you’ve got planners working off desktop solutions it’s a lot harder for the dealers to really get a view of what the planners are doing day-to-day in their office.

“I think you’re seeing a big change away from that, where the dealer is basically taking ownership of the technology strategy for the entire dealer group and what the planners are actually using because it gives them that central control and they’re able to manage the processes, especially from a compliance perspective, much more effectively.”

All of which means that a dealer can see exactly what its planners are doing at any time, anywhere in the country. And if that smacks of Big Brother, Johnston says it’s simply a reality in the post-shadow shopping era.

“You get some practices saying ‘I don’t want the dealer looking over my shoulder all the time.’ But following the fallout from the ACA/ASIC report and where the FSRA is going, I think it is just the reality of the future.”