Financial Services Minister Kelly O’Dwyer stated that the new body was intended to deliver “practical outcomes” for consumers rather than a royal commission into the sector. One can draw from this that the decision was based on political pressure rather a practical insight into the sector. 

It is somewhat ironic that former NAB director, Cathy Walter, has been appointed as Chair of this body given that it has been the banking sector that has been primarily responsible for perpetrating the financial advice scandals of recent times. 

Whilst I loudly applaud the concept of the new body, I am in absolute amazement at the total waste of money and resources for the “creation” of mechanisms that already exist.

Let me precis the facts:

1. We have the Financial Services regulation that is robust in nature and has the advice control mechanisms to protect the consumer. It is the lack of enforcement that is the issue.
2. We have the Australian Prudential Regulatory Authority that is responsible for regulating the banks.
3. We have the Australian Securities Commission that is responsible for regulating financial advisers.

The Financial Planning Association (FPA) has a code of ethics and professional practicing standards that have been in place and enforced by an internal tribunal for many years. These standards are considered world’s best practice. The FPA also has a mandatory degree based education standard and compulsory continuing professional education standards.

All the mechanisms are already in place. The only problem is that the government and the regulators have failed dismally to keep pace and enforce the rules.

So what is the government’s solution? Let’s spend some more tax-payers’ money and add to the annual deficit by forming yet another regulatory body.  But what is this body going to do to protect the public against bad advice and achieve appropriate compensation?

I note that a study into external complaints schemes has been carried out by a panel headed by Professor Ian Ramsay. As a result of this report a mega scheme is to be formed merging the Financial Ombudsman Service (FOS), the Superannuation Complaints Tribunal (SCT) and the Credit and Investments Ombudsman (CIO). The latest figures from FOS showed that up to $16 million of compensation payments, which should have been paid to claimants, weren’t paid because the perpetrators declared bankrupt, collapsed or simply refused to pay. Again, the resolution mechanism currently exists – it just doesn’t work as it should. 

The fact is that complaints resolution schemes are only as good as their results and consumers receiving the compensation they’re entitled to.  The only underwriting mechanism is professional indemnity insurance. And therein lies the problem. 

What is required is a properly constituted and fair Mutual Discretionary Fund, where all licensees are required to contribute and must be backed by a viable PI insurance resource. But the issue always is the quality of the insured. Why would a compliant, professional financial planner like Hewison Private Wealth want to contribute to a fund that includes licensees that pay little attention to regulations and the supervision of the advisers. The premiums would be unaffordable and it would be impossible to find an underwriter to take the risk.   

So rather than appoint more toothless committees, here are some alternative suggestions: 

1. The institutionalisation of professional advice is flawed and should be banned by toughening up the supervisory requirements and requiring compulsory membership of approved professional bodies.
2. Members of Professional Bodies should be subject to a biannual user pays audit.
3. Enforce the regulation and kick out the perpetrators.
4. Introduce criminal sanctions for those who break the law and through their actions cause financial misery to others. 

Believe it or not Australia has the core of what may be the best professional financial planning structure in the world. If we enforce these standards across the board the quality of advice and professional practice will lift. And consumer protection will be far more viable and enforceable.
I know I keep banging on about the same thing but again, I repeat my mantra. Coregulation between ASIC and the FPA (or any other professional association can achieve the required standard) is the only practical and cost efficient solution, in my view.

John Hewison is the passionate Founder & Chairman of independent financial advisers – Hewison Private Wealth. 

The information provided above is general information only.  It does not consider your needs, financial situation or objectives. You should seek specialised advice from a qualified financial adviser.