SWITZER:
The Royal Commission has unearthed a lot of questions about our financial system, so how will financial advisers be affected? To answer this question we have legendary financial adviser Noel Whitaker, who is now executive in residence, an adjunct professor at the QUT Business School and the nation's Assistant Treasurer Stuart Robert joining us on the program. Thanks for joining us gentlemen.
Let's kick off with you Stuart. Thanks for coming on the program. You have heard a lot from the Royal Commission, clearly you have. A responsibility to have an impact on financial advice, what are your initial thoughts of what you want to do?
ROBERT:
If you look at what [Commissioner Kenneth] Hayne has said in the interim report, and of course the final report comes out on one February, he pointed to cultural problems, cultural problems of greed over the consumers best interests, problems of putting adviser's best interests above a consumer's best interests. So, I think one of the overarching issues that we'll have to deal with, we as a country, is how do we get trust back into financial advising, so Australians feel very confident going and getting the advice they need and following that advice. That concept of trust will be key.
SWITZER:
Can you think of a standout change that you will like to make, even before you see Hayne's recommendations, we have a rough idea of what he is going to say? But you must have in your mind at least one big reform that you would like to bring to the table.
ROBERT:
Well if you look at accountants, every accountant is either a CPA, part of the IPA, the FTAA or part of the Institute of Charted Accountants, but that is not the case for financial advisers. Some are part of the AFA, some are part of the FPA, there are other associations, but there is no requirement for an adviser to be a member of a professional body, professional board, an accredited and educated in that respect. I think that one thing would go a long way to professionalising the industry.
SWITZER:
Okay, let's talk to Noel Whitaker, Noel has been a financial planner for a long time, written some of the most famous money books that this country has ever seen. Noel you have heard a lot from the Royal Commission. You have obviously have had your views on what financial planning should be like and what it should do. What would you like to see happen to financial planning?
WHITAKER:
Well Peter, I would like to point out I sold my financial planning business 12 years ago. So now I am an independent commentator. And I think I certainly agree about having professional bodies. But what I don't like is this push to make everyone get a degree whether they need it or not. They are trying to wipe out the CFP and I think the CFP is a very good qualification and I think one of the offshoots can be a lot of very good people will be forced out of the industry and the industry at the moment needs good people.
SWITZER:
But Noel, do you think that there is a better way to end up with a good collection of financial planners other than having a degree? And if so what is that alternative qualification?
WHITAKER:
Well Peter, you would never ask your local doctor aged 55 to go back and restudy medicine and you wouldn't ask your lawyer to do that. What I am saying is that some very competent people, very well thought of with a CFP now and they shouldn't be forced to go back to university. Because it doesn't serve any purpose. It will just force good people out of the industry.
SWITZER:
So Stuart, what do you think about Noel's view on, on that particular point?
ROBERT:
Well it is always s difficult do disagree with a financial Wizard of Oz, and I was just saying Noel, to Peter, one of my first investment books I ever got when I was 12 years old was Making Money Made Simple.
WHITAKER:
That's great.
ROBERT:
However, if you went to your doctor or you went to your accountant you would know by virtue of their qualification they had a degree to start with. Because you can't be a doctor without it and it you can't be an accountant without it. So, there is this groundwork of understanding of what you've got. So the Government has now moved in line with what the FPA, the financial planning body, has put in place to say that you have got to have a base level of qualification.
But Noel is right, there are very experienced planners out there we don't want to disadvantage. So, I think what you'll find is those with professional qualifications and those with certifications will probable get half of the new standard of eight subjects will get recognition of prior learning and they will just then need to so a small bridging course in recognition of their skills, knowledge and experience.
SWITZER:
Noel, because you have been in the game a long time there was a time when I could recall changes were introduced and a lot of insurance brokers all of a sudden became financial planners. Did that particular move worry you at the time? Because you had a lot more sophistication and training when that particular development happened.
WHITAKER:
Peter, look there is no doubt there is some bad history. But I think the bad history is a long time ago and I think the trouble with the Royal Commission is they've picked on the bad apples. I mean most financial advisers are quite good, but what the Commission did was just pick out the bad apples and that has given the industry a bad name. You know people need good advice more than ever and that's a fact.
SWITZER:
But Noel, would you support the idea, say for example, the Government introduced some kind of screening system where ordinary performing financial planners were actually brought to book, just like lawyers when lawyers misbehave they have got to go to various legal bodies and sort of face the music, if you like, do you think this industry, our industry requires that?
WHITAKER:
Well, at the moment they are supposed to have, I mean looking at the Hayne Commission it was obvious that when complaints went to the industry bodies they were more concerned about keeping the reputation of the body and not fixing up the customer.
SWITZER:
So Stuart, do you think that's probably what we have to think about having an objective assessment group so if a consumer really feel like they have been hard done by, by a financial planner, I know it can go to ASIC, but clearly it hasn't worked given what we saw at the Hayne Royal Commission?
ROBERT:
Well 12 days ago, Peter, the Australian Financial Complaints Authority commenced. Which was an amalgamation of ostensibly three ombudsman bodies so that the FOS and of course the body that dealt with superannuation have all merged together. That's now operating. So anyone with any complaint in the financial planning industry can go to AFCA, the Australian Financial Complaints Authority, just Google AFCA, it will come up. It has got enormous resources. There is no cap on the awards that it can make. It can hear cases well in excess of a million dollars. So that has been put in place now.
SWITZER:
Will lawyers be involved or will it just be the complainant, the financial institution involved and a conciliator?
ROBERT:
It is designed for the simplest possible approach. So there are a range of ombudsman there that can actually receive an information set, and then make decisions. So there will be times when there will be no hearing at all. It is not like the Administrative Appeals Tribunal where that sort of recourse is available. So if people have got concerns right now or complaints, if they feel they are being hard done by AFCA, the Australian Financial Complaints Authority, it is open right now.
SWITZER:
I think you are the first politician, apart from the Prime Minister when he was Treasurer, who told me about AFCA. You are not really marketing that as well as you should, I reckon. What is your honest view?
ROBERT:
My honest view is that I'd live to talk about these things every day because they are really important, especially now that it is a one-stop complaints shop and consumers, citizens can just go to one place, just one.
WHITAKER:
Is the ombudsman gone, is the ombudsman gone now has he?
ROBERT:
No, the ombudsman have all folded together and there is now more of them. So there are more people actually capable and able to make a decision.
WHITAKER:
So all the ombudsman are in one bundle now, right? Is that …
ROBERT:
They are in one bundle with one process.
WHITAKER:
That's good.
ROBERT:
And one place to go to.
SWITZER:
Now Noel, what are the areas that have been brought up in the paper recently is around insurance and commissions to advisers. In the past have you worried about the magnitude of, particularly the upfront commissions and how they could influence financial planners and encourage their clients to change policies so they get the upfront commission?
WHITAKER:
Yes but I think those days are behind us to. I mean, I think the upfront commission mainly in the insurance products, they certainly are not in the managed funds products.
SWITZER:
No, but on the insurance ones has that been something that has bothered you in the past?
WHITAKER:
Well yes, I've seen it happen. Absolutely yes. Yes.
SWITZER:
So, Stuart, do you think that's an area that you'll be looking at pretty seriously?
ROBERT:
I think it's an area the Hayne Commission has looked at and we are preparing of course for Hayne to make a raft of recommendations on the first of February and I think in areas of commissions and conflicted remuneration and issues of trail that he may well go there.
SWITZER:
Yes, the interesting thing is that being a financial planner myself I know that you can do a whole hell of a lot of work for a client and they don't get a policy and how do you charge them. So it becomes a very difficult thing and I think that is part of the reason why the industry came up with these unbelievable types of remuneration for financial planners when it deals with insurance.
ROBERT:
Well under the FOFA reforms that came in five-six years ago, of course commissions or trail in insurance what dropping to 80 per cent and then 60 per cent the following year and that kicks in 2020. That was a bi-partisan government report. 11 recommendations and I was one of the Opposition MPs at that stage that did that bi-partisan report. So, I think that has gone well and we are still waiting to see that roll in to 2020. But I think the Hayne Commission may well make some remarks in that space.
SWITZER:
Okay, so when do you think you will have your policy response in before the election?
ROBERT:
Well, I think Christmas is being cancelled for the Treasury ministers, Josh and I and the Prime Minister. The Productivity Commission comes down on 20th of December on superannuation, they Hayne Royal Commission on the first of February. A fair bit of work has got to go in before then and of course our response would need to be known soon after that.
SWITZER:
Okay Minister, thank you for joining us.
ROBERT:
Great Peter, thanks.