Dover Financial’s Terry McMaster leaves the royal commission
A question that has repeatedly been asked at the financial industry royal commission is whether financial planning is a “profession”. No one’s been willing to give an unqualified “yes”, but there have been a few guardedly optimistic answers; one witness described it as “an emerging profession”. It’s clear from this week’s hearings, however, that even if there are a number of independent, quality planners who place their clients’ interests first, financial planning is a very long way from being a profession, and we’ve been fooling ourselves about how close it is.
If you think this is an arcane debate, think again. Some of the “let’s not have a kneejerk response to the royal commission” crowd have a point when they wonder what kind of financial advice system we’ll have when big banks — as they mostly are — abandon vertical integration and sell their wealth management and financial advice businesses. So what, good riddance — except, in a kind of “you won’t have Nixon to kick around any more” scenario, it means that the big villains of ripping off financial planning clients will depart, leaving a highly fragmented industry composed of many smaller players, none of whom have the financial resources, or reputational capital, that mean they can be publicly shamed into compensating victims of dodgy planners, rather than litigating against them.
We got a glimpse of that rather more Darwinian world yesterday at the royal commission from the head of Dover Financial, Terry McMaster. Dover had responded to one complaint about the advice it had provided by threatening to sue the complainant for defamation. It also regularly took on planners who had been the subject of misconduct allegations in previous jobs. McMaster had a so-called “client protection policy” that purported to absolve Dover of any responsibility if a planner gave improper advice or breached any law. Sadly, McMaster suffered an inconvenient physical collapse under hard questioning from counsel assisting, and was excused for the remainder of the current batch of hearings, depriving us of an opportunity to see further into the murky world of mid-tier financial planning firms.
What about the “professional” associations for financial planning? Bodies like the Financial Planning Association and the Association of Financial Advisers have been given the status of co-regulatory bodies under current financial services laws. In one of the compromises to get the Future of Financial Advice (FOFA) laws through parliament in 2012 (it would be nice if every single parliamentarian who threw up roadblocks to the FOFA laws back then, like Andrew Wilkie, now acknowledged their error), financial planning associations were given a co-regulatory role to exempt advisers from the much-hated “opt-in” requirement (for clients to keep paying fees for advice they might not be receiving and which, we now know, in vast numbers of cases never received).
It’s become clear from the royal commission that such bodies didn’t deserve such status. The case of celebrity financial planner Sam Henderson illustrated the FPA’s reluctance to go hard on complaints about planners out of fear they’d simply walk away from the association. The bodies have no powers and few options to enforce professional standards even if they wanted to. They’re not in any way comparable to medical and legal professional bodies, who can end careers and impose tough sanctions on errant members.
The poor quality and lack of professionalism of planners isn’t just a problem for wealthy Australians. Henderson’s aggrieved client Donna McKenna is a Fair Work Commissioner. Today, Jennifer Hewett in the AFR acknowledged her own experience of dealing with a dud planner. These are articulate, highly educated and presumably well-remunerated people who have struggled to get decent advice. But the royal commission also heard from nurse Jacqueline McDowall, the victim of a Westpac financial planner.
As the retirement savings pools of even low and middle-income Australians grows into the hundreds of thousands of dollars via our compulsory super system, more and more of us will need quality financial advice and be vulnerable to an impoverished retirement if we don’t get it.
Thus far, we’ve relied on a ramshackle regulatory system in which “professional” associations did little and the regulator virtually nothing while self-interested and often incompetent planners, backed by major institutions, ripped off or badly advised clients, with public shaming of major institutions the only effective form of retrospective justice. It was never sustainable, and even less so now that those institutions are abandoning the industry.
NEXT: how to truly professionalise financial planning