Brown observes that the industry often claims clients are fully informed about their options and that planners are acting in their clients’ best interests – even the promoters of the Queensland-based Storm Financial, which collapsed in 2009, made such claims. However, while clients may be informed about their fees and options, experience shows that the vast majority of clients do not understand these disclosures, even when they are technically and comprehensively informed of them. Financial education will address these issues to some extent, but the problem will not be solved until the industry is trusted. The only way to do that is to align the interests of clients with those of financial planners.
Dante De Gori, general manager of policy and government relations at the Financial Planning Association of Australia, is not opposed to the standards board’s proposed changes, but he thinks the draft standard is unlikely to be approved. “It’s very much a symbolic standard only at this stage,” he says. De Gori anticipates a cultural shift in the industry with the arrival of younger financial planners without the historical baggage of the sales commission regime.
Resistance to reform changes is not surprising. But the broader question is: How easy will it be to train people with a primary focus of adding value for the clients? People respond to incentives and Parwada is uncertain that providing younger people with a different form of training alone will change behaviour.
“When they go out into the world they will face pressure to sell if the business model is not changed,” he suggests. Financial education will address these issues to some extent, but the problem will not be solved until the industry is trusted because the interests of clients and financial planners are aligned.
In the meantime, Australia waits to see whether the private sector ethical standard setter will lead reform in a beleaguered industry.
