Key factors in the transition of financial advice to a profession

 
Date: 03 May 2019
Take outs
  • Advisers worry weight of the reforms will crush them
  • Australians need financial advice more than ever
  • Advisers deserve more respect


Financial planners are undergoing a transformation of significant proportions, as they move closer to attaining recognition as a profession.

Advisers are transitioning away from the sale of financial products to a profession concerned with the provision of financial advice, but for the shift to succeed all advisers must embrace the process.

Dante De Gori, CEO of the Financial Planning Association of Australia (FPA), joined us recently for the Netwealth webinar, ‘How the Royal Commission findings will impact your business’.

Dante is a proud CFP professional and extremely passionate about supporting advisers through change and building widespread consumer trust.

He believes that advisers must all be on the same page if the public is to perceive them as a true profession.

Dante admits that many are sceptical and concerned that their role may not endure the weight of recent changes. 

However, despite the challenges, he believes in a positive outlook.

“Financial advisers who can find their way through these reforms and changes, I believe, will be better off. They will find some great benefits following the end of this reform process for their business, for themselves personally, and of course for their clients,” Dante forecasts.

A number of financial advisers fear their jobs may become extinct, but Dante says otherwise.

“Financial planning is needed more than ever,” he remarks.

“The Australian government and the economy need financial planning given the ageing population, and a large and ever-growing superannuation pot.

“People need advice. Australian’s need advice and financial planners are the best equipped place to come to for advice.”

According to the ASIC registers, the number of financial advisers has exploded by 41 per cent from 2009 to 25,386 on the 1st of April last year.

However, the number of Australians receiving financial advice has decreased since the global financial crisis, with 48 per cent of Australian adults indicating unmet advice needs.

In order to reverse these statistics, Dante believes that the community must begin to recognise advisers as members of a profession.

So, what are the key factors in the transition to a profession?

Since the financial advice reforms, there have been 54 separate reviews and inquiries, either directly or indirectly, into financial advice.

Most recently, commissioner Hayne outlined three key elements that need to be achieved in order for advisers to complete their career makeover.

These include: removing fees for no service; reducing conflicts of interest; and building a cohesive disciplinary system.

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1. Fees for no service

The Hayne royal commission shone a light on financial advice and concluded that the charging of ‘fees for no service’ has caused irreversible harm to the image of financial advisers.

“Advisers need to take steps to deal with those involved in charging ‘fees for no service’, and to ensure that it does not happen again,” says Dante.

According to a report released by ASIC in 2016, customers of the big four banks, AMP and Macquarie Bank had been regularly charged fees for services never delivered.

Commissioner Hayne has warned that “until satisfactory steps have been taken to deal with those involved in the charging of ‘fees for no service’, and to ensure that it does not happen again, the financial advice industry will lack the public respect and trust that is a necessary aspect of any profession”.


2. Reducing conflicts of interests

Step two is reducing conflicts of interests. Dante explains that while “you’ll never have a profession without conflicts”, advice businesses must make a conscious effort to reduce them.

He says that accountants are actually permitted to operate with some conflict.

“There are conflicts that exist in every single business model in the marketplace, so even those that meet the strict definition of independence under the Corporations Act still face conflicts,” Dante notes.

However, the latest reforms, which will see the introduction of an overarching code of ethics for the advice industry, are expected to make conflict less of an issue in the future. 

3. The disciplinary system

Hayne has recommended that the law should be amended to establish a new disciplinary system for financial advisers.

Among other things, the new system is expected to yield a single, central and disciplinary body, while also requiring all financial advisers who provide personal financial advice to retail clients to be registered.

Dante admits that this was one of the areas that the FPA got criticised on quite significantly during the royal commission.

“The criticism really is around the fact there isn’t a cohesive disciplinary system. This is because we do operate under our own system, the same as any other licensee,” he explains.

“There isn’t a cohesive operation between all those parties to work together around discipline.”

Dante admits that he agrees with the commission’s recommendations and says that introducing a credible and coherent disciplinary system is paramount.

“This needs to be worked on in order for the transformation to occur,” he concludes.

Listen to the Netwealth webinar, ‘How the Royal Commission findings will impact your business’, or contact your local BDM for more information.

 

Hear more from Dante de Gori

Listen to Dante discuss the benefits of greater education for advisers and what impact this will have on attracting the next generation into the industry. 

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Views expressed are of the interviewee and may not be the opinion of Netwealth or its related companies.