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Editorial: Defining best interests
hen the executive chair of Industry Fund Services, Garry Weaven, addressed the Financial Planning Association’s (FPA) national conference in Melbourne last year, he received a torrid welcome from some of the assembled financial planners.
However, Weaven, who cut his teeth as an official within the Australian trade union movement, had no doubt dealt with tougher and more intimidating audiences — a roomful of financial planners hardly compares to addressing a bunch of builders’ labourers.
That said, Weaven’s presence at the FPA conference established a precedent. It was a precedent that said the Australian financial services industry and, indeed, the superannuation industry is broad enough to accommodate a diversity of views and approaches — even one as anti-commission as that espoused by Weaven.
It is therefore both appropriate and refreshing to note that the chief executives of both the FPA and the Investment and Financial Services Association, Jo-Anne Bloch and Richard Gilbert, will be addressing this year’s Conference of Major Superannuation Funds (CMSF) on the Gold Coast.
It is hardly surprising but entirely appropriate that Bloch and Gilbert will be canvassing the issue of financial advice in superannuation and, no doubt, how those providing the advice should be remunerated.
It seems doubtful that either Bloch or Gilbert expect an easy time at a forum such as CMSF, but Weaven in early March ensured delegates were provided with plenty of background when he released the results of a Newspoll survey that broadly suggested the need for an even tougher regulatory regime covering financial planners.
Weaven said the survey had shown almost 85 per cent of Australian adults believed there should be a law in place requiring financial advisers to provide advice or make investments only in the “best interests” of clients.
He said 64 per cent of respondents had strongly agreed there should be such a law.
According to Weaven’s interpretation of the survey, one in five Australian adults incorrectly believe there is a law in place requiring a financial planner to provide advice or make investments only in the best interest of their clients.
He went on to say that while his organisation believed good advice was important, the current regulatory environment tended to create a culture of sales rather than advice.
While Weaven did not make specific reference to commissions, his message was clear — if financial planners are receiving commissions from investment product manufacturers, then they are being ‘incentivised’ to sell a particular product.
But a key question needs to be answered: Does a commission regime of itself dictate that planners will give advice that is not in the best interests of their clients?
And, perhaps more importantly, who should be the ultimate arbiter of what represents the best interests of a client?
In circumstances where it can be plainly argued that industry superannuation funds offer lower fees at the same time as generating excellent returns for members, it follows that any financial planner who suggests a client become a member of an industry fund is probably acting in their best interests. The difficulty here, though, is superannuation usually represents only one dimension of a client’s financial advisory requirements.
The bottom line in the financial advice debate is it is not about superannuation alone. That is why those participating in the argument need to differentiate between the question of superannuation switching and the provision of broader advice to clients.
The irony of the situation is all the parties to the debate argue that there is a need for absolute clarity and transparency when giving clients superannuation switching advice — something that has been reinforced by factors such as the enforceable undertaking entered into by AMP Financial Planning.
Consumers are likely to be far less confused about the whole issue of financial advice if the major industry players clearly separate the question of superannuation switching from the value of advice.
AUTHOR
Mike Taylor
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