Royal Commission – The good, the bad and the downright disgusting

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industries.

Tony Skinner, Director and Senior Wealth Strategist at SWM Finance Matters, provides you with his commentary and analysis on the findings and revelations to date.

Gordon Gecko, made famous in the movie Wall Street said “Someone reminded me I once said “Greed is good!” now it seems that it is legal.” Sound familiar?

Over the last few weeks, Australian media outlets have been awash with tales of unimaginable levels of misconduct. For every story that has been exposed, there is a story of heartbreak for a family behind it. It’s soul destroying for communities, and for planners like myself who act with full integrity and live by a self imposed code of ethics.

This is an industry that I love. Helping put people meet their personal financial objectives – it’s the reason I get out of bed. The Royal Commission will result in any number of changes, but the one thing is guaranteed – it will clean up the industry faster and further than the extensive Future of Financial Advice “FOFA” legislative changes that came into effect in July 2013.

Those changes compelled financial planners to act in the best interest of their client.

I personally feel that because such a provision even had to be introduced, it said a great deal about an early awareness and the existence of the type of greedy, classless advisers that are now being exposed.

It also set out a ‘Safe Harbour’ provision. Again, this compelled planners to consider ALL other actions that could put the client in a better position. (For anyone interested in the full provisions, I have provided the Section 961B(2)(g) wording at the end of this article.)

The Royal Commission findings date back to 2005, traverse through a number of legislative upheavals through to the current day. Personally, I would like to have seen the findings split into 2 parts; from 2005 until 1 July 2013 and then 1 July 2013 to current day.

My rationale is that they could have measured the pre July 2013 (what is termed the ‘Reasonable Basis’ legislation) with the post July 2013 (the ‘Best Interest’ legislation). How else can the legislative change been seen to be effective if it is not measured? Certainly, this is a missed opportunity.

Furthermore, I believe it’s no accident the financial institutions are facing questions in the specific areas they are. ASIC knows exactly where to look because these institutions were given a deadline to ‘come clean’ and report each case of any possible breaches.

Personally, I wouldn’t be surprised to see an amnesty deal having been done to bring this out into the open. But god help them for cases exposed from now.

The Royal Commission is shining a spotlight on ‘vertically integrated*’, bonus inspired, financial service companies with distinct conflicts of interest. The behaviours that are being exposed are horrifying, greedy, sordid and criminal but I fear there are more shocks to come.

*The term ‘vertical integration’ references the big institutions luring tens of thousands of clients to put their money into a cash account, term deposits, credit cards, loans and mortgages. When the dollar value of a client is big enough, or the clients’ goals and their needs have grown, they’re referred to their own financial planners. They in turn place the clients’ money into their own administration platform and invest in their own funds management arm.  Bonuses are then paid to staff on reaching THE BANKS financial targets. Pay day becomes the motivator and it’s fuelled by greed – the Royal Commission is soaking in tales of it.

 

The SWM Way

In the months leading up to starting SWM Finance Matters in May 2008, I called on a panel of over 1,400 financial planners.

For many I still offer my thanks, but it also allowed me to see many of the defects that are being highlighted in the Royal Commission.

I thank my parents who instilled in me a doctrine to live by:  always be honest.

It’s an ethos I was introduced to at a business level at Australian Executor Trustee. They were compelled by an act of parliament to act in the clients’ best interest, to operate under prudent person rules and apply reasonableness tests. This is ingrained in all I do.

In short, the principle on which SWM Finance Matters operates is simple – be honest, be truthful, be thorough, look for a win:win outcome but most importantly, always act in the best interest of the client.

Furthermore, I’m pleased to itemise the cornerstones of our conduct –

  • We have always used wholesale administration products where all fees are disclosed – complete transparency, no hidden commissions – inexpensive and fully featured.

 

  • We refuse, and where possible, rebate any hidden investment commission on all of our advice.

 

  • We cost out our strategy work, openly discuss the cost of that work, endeavour to provide enough relevant information to conduct a cost benefit analysis and then only go ahead with the work if we have the client’s blessing.

 

  • We refused to receive volume bonuses – these are bonuses that are paid based upon the funds invested into certain administration platforms – these could have added up to more than $50,000 over the past 10 years – but I didn’t want that affecting the advice we gave.

 

  • We never want things to slip through the cracks – so we are unapologetically process driven – we employ sophisticated advice implementation software to track each step of the way (Ccube), we created comprehensive workflows to ensure our recommendations are 100% implemented – this software is not cheap but it is a critical part of our process

 

  • We continually research the market and compare as many products (through softwares such as Lonsec iRate, Morningstar ARC and AdviceOS) as we can to ensure they meet our standards of Expense; efficiencies, features; payment terms, serviceability; liquidity; transparency and user experience both yours and ours.

 

  • Where possible we price our services on Industry Fund Financial Planning prices – even though we are positive that we provide a more consistent, comprehensive, more friendly, more holistic service and follow up to let you know.
  • We made ourselves accessible – we are not the usual 9 – 5 firm. How often have we responded at times when you thought ‘I’ll just leave a message’ or ‘wait for the email back tomorrow’? We want you to sleep at night by not having to worry any further.

It is my hope that you can see a distinct difference between the behaviour that has been exposed during the Royal Commission and the business I have tried to craft.

Please, if you have any concerns or just want to vent some of your disgust (we feel it too) at their behaviour, feel free to contact us on 08 82715427 or email treona@adam.com.au.

 

 

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The Law

Safe harbour for complying with the best interests duty

Section 961B(2) provides a ‘safe harbour’ for advice providers. If an advice provider can show that they have taken the steps in s961B(2), they are considered to have complied with the best interests duty.

The safe harbour requires an advice provider to:

(a) identify the objectives, financial situation and needs of the client that were disclosed by the client through instructions;

(b) identify:

(i) the subject matter of the advice sought by the client (whether explicitly or implicitly); and

(ii) the objectives, financial situation and needs of the client that would reasonably be considered relevant to advice sought on that subject matter (client’s relevant circumstances);

(c) if it is reasonably apparent that information relating to the client’s relevant circumstances is incomplete or inaccurate, make reasonable inquiries to obtain complete and accurate information;

(d) assess whether the advice provider has the expertise required to provide the client with advice on the subject matter sought and, if not, decline to provide the advice;

(e) if it would be reasonable to consider recommending a financial product:

(i) conduct a reasonable investigation into the financial products that might achieve the objectives and meet the needs of the client that would reasonably be considered relevant to advice on that subject matter; and

(ii) assess the information gathered in the investigation;

(f) base all judgements in advising the client on the client’s relevant circumstances; and

(g) take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances: s961B(2).

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