Phasing out commissions won't solve underlying problem
The Financial Planning Association’s (FPA) move to phase out commissions by 2012 will not solve one of the major problems facing the industry — the delineation of financial product sales and advice, according to a Queensland financial planner.
Bruce Baker, Certified Financial Planner and director of Puzzle Financial Advice, raised the latest move from the FPA on financial planner remuneration in his second submission to the parliamentary inquiry into financial products and services in Australia.
Baker said while the FPA’s move to phase out commission payments by 2012 “is a step in the right direction”, it still “misses the most important issue, from a consumer perspective”.
“Even after commissions are gone … we will be in precisely the same position as we are today,” Baker said.
By that he means that some AFSL representatives will continue to be sales people while others will be true advisers, a point that needs to be distinguished to consumers.
“Consumers cannot wait until 2012 only to discover that banning commissions does not solve the main problem, which is that there are sales people out there masquerading as advisers — and many consumers cannot recognise which the sales people are,” Baker said.
In his supplementary submission Baker stated that on the spectrum of advice providers, there are those who are “very clearly in the product sales business”, and at the other extreme those who are “very clearly in the advice business”.
“However, the clear majority of the financial planning industry are in the grey zone between, exhibiting some of the characteristics of an advice provider and some of the characteristics of a financial product sales business,” Baker said.
He believes it is time “that financial planners and [Australian Financial Services Licensees are] forced to choose which side of the fence that they live on — advice or sales — and that each group be clearly labelled as such (for consumers to see) and that relevant different standards of behaviour be applied to each group”.
Meanwhile, Baker also wrote in his submission of his concerns regarding the Australian Securities and Investments Commission’s enforcement of disclosure requirements. Baker said that while the current disclosure requirements around factors that might taint advice are “fairly comprehensive”, concerns remain.
“In my view, ASIC does not seem particularly diligent in enforcing the law as it relates to disclosure — and does not seem motivated to systematically investigate failures in this space.”
Baker said that “many small AFSLs that I have talked to have given up reporting Corporations Law breaches by other AFSLs because of the view that ASIC simply does not act on these reports”.
“If ASIC is serious about ‘getting rid of the bad apples’ it needs to use industry intelligence far more diligently and far more systematically,” Baker said.
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