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Senate inquiry: Pain must prompt change in financial planning

As Senator John Williams pointed out the national register will only work if breach reports are included. Photo: Eddie Jim As Senator John Williams pointed out the national register will only work if breach reports are included. Photo: Eddie Jim
If one message came out of the Senate hearing into financial misconduct, it affects too many lives, has caused too much pain and is too important to be swept under the carpet.

It was a message the chief executives of Commonwealth Bank (CBA), ANZ, Macquarie and National Australia Bank heard loud and clear as they were grilled by a Senate committee. Senators demanded to know how many planners they had sacked, how many were reported to ASIC, what compensation was paid to victims, and what they are doing to change their ways.

The industry is a mess. The committee heard we have a regulator that has been too slow to act, an industry with questionable licensing standards, flaws in the national financial advice register, conflicts of interest with vertical integration, poor education standards and a lack of professionalism. The list goes on.

CBA said 43 planners had "left" in the past three years and it had reported 11 planners to the police since 2011. NAB said it has terminated or "moved on" 37 planners in the past two years and 41 over the past five years and filed eight breach reports. Macquarie has moved on and reported 11 advisers to ASIC, and ANZ terminated 16 planners in the past year and filed six breach reports to ASIC.

This is all well and good, but as Senator John Williams pointed out the national register, which was set up in March to track advisers, will only work if breach reports are included. His concern was the banks "moving on" planners who then move to another financial planning organisation and do the same thing again. "It is like a paedophile priest doing the wrong thing then going off to another parish and doing the same thing," he said.

To be fair the industry agrees it needs to change. Steps have been taken, including the Future of Financial Advice (FOFA) legislation, and ASIC has made financial planning its top priority. There are also moves to overhaul the life insurance industry, given 37 per cent of advice is in breach of the law.

The banks also agreed in principle to a proposal raised by Labor Senator Sam Dastyari and Independent Senator Nick Xenophon to set up a compensation scheme of last resort to help victims of financial misconduct.

The fund would assist customers who have suffered losses due to the collapse of a fund or an entity as a result of rogue advice. "It doesn't mean we can ignore or forget the victims who have fallen through the cracks. They are the forgotten people," Senator Dastyari said.

Other countries including Britain have a compensation scheme and ASIC raised the concept in a submission to the Financial System Inquiry.

It is a topic that has been debated many times over the years but has never seen the light of day.

An issue is the banks are big enough to fund their own compensation and so if they don't help fund this one it will be left to the smaller licensees, who will argue they can't afford it and will be muscled out of the market due to a blowout in costs.

A draft proposal for the scheme will be released in the next month and will air all the various grievances, but it is a debate that needs to be had given the number of people who fall through the cracks.

According to the Financial Ombudsman Service (FOS), more than $15 million worth of compensation applications should be paid to victims but the organisations have either gone belly up or their professional indemnity insurance doesn't cover the payouts. It means hundreds, possibly thousands of customers are left out in the cold.

FOS is also flawed. It has a claims cap of $160,000, which means if there is a claim that exceeds that, the victim can either apply to the organisation for compensation or go to court.

And as the Senate committee heard on Tuesday, the compensation schemes currently running at CBA and Macquarie are far from perfect, while NAB's scheme for victims of sacked advisers lacks transparency. Frankly, everyone needs to do better.

Author: Adele Ferguson
Source: The Sydney Morning Herald

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