In a speech to the American Chamber of Commerce in Australia on 20 June, Mr Murray (who commenced as chair on 22 June) warned that legislation targeted at vertical integration could limit the number of Australians who can access financial advice.
“Should legislation target vertically integrated business models, it risks the removal of the significant sources of support for financial advice that exist today,” he said.
“Substantial consumer benefits can be derived from vertically integrated business models as a result of their scale and access to capital. They have resources that can fund the investments needed support large scale product and advice platforms, can support systematic and comprehensive customer remediation in the event of misconduct, and can develop compliance systems that will evolve with regulation.”
Mr Murray said the royal commission needs to consider this and that its recommendations should instead look specifically at the activities causing problems within the industry than the business models used by industry players.
“The issue for the royal commission will be that increasing number of users of the financial system will not be able to acquire affordable financial advice,” he said.
“To deal with this it would be better to prohibit activities rather than business models. For example, advisers should not receive product or distribution-based fees but can adapt their remuneration to fees for professional advice once only or as a per cent of an investment portfolio where the interest of the adviser and consumer are aligned.”
Further, Mr Murray said it wouldn’t be possible for the royal commission to remove all risk from the industry and needs to factor in the frequency with which problems arise.
“From a public perspective, the apparent extent of misconduct has received widespread coverage partly because of the approach the commission has taken to self-confessions and selected case studies,” he said.
“In dealing with this, the royal commission will have to consider the incidence of mistakes and their severity as no aspect of commerce can be regulated to eliminate all risk.”
[quote=John Jones]We shouldn’t have in house products but then again an SMA/MDA saves transaction costs ? We really are confused aren’t we. [/quote]
Do you know what a MDA actually is? Its not an in-house product, its just an agreement to be able to trade discretionary on behalf of a client. You can run an MDA over whatever platform you like.
Its astounding how many advisers dont understand this. Scary.
In terms of RISK advice, commissions would no longer be “an issue” if advice, implementation and claim management fess were FULLY TAX DEDUCTIBLE. Of, and insurers gave more back on NIL COMMISSION RISK. Only a 25% discount is gouging
Whilst the source should be viewed with suspicion the message is exactly right.
The existing laws just need to be enforced and the market should be the determinant of which business models prevail. In fact I would prefer to see a number of alternate business models as that is what determines the appeal of an industry to the most number of clients/buyers.
Respectfully disagee, Rob. That method has clearly not worked, the capacity is not there to properly police the industry. No other way but to cut out the shonky operators through legislation and say goodbye to the dinosaurs like David Murray once and for all… Then we can forge a path to professionalism.
However the question is “why has it not worked”? Its because of a lack of enforcement on people doing the wrong things.
As soon as you start dictating which models can or cannot exist you are stifling innovation and progress….exactly the things that will move the industry forward to satisfying clients goals…that is how markets work.
Hahahahha. We would rather advice be restricted to Australians rather than pushing them into the hands of AMP or the banks… That way over time people will actually see the benefit of good financial advice through unaligned/independent avenues and slowly become more comfortable to seek it rather than see scandal after scandal.
How stuck in the past is this bloke, absolutely laughable.
I don’t think clients of Dover and Sam Henderson saw these so called benefits. There is a place for both models and clients should be able to make an informed choice and not have governments make decisions for them.
Haven’t seen too many negative client outcomes from Dover reported.
Agree on Sam Henderson, but that’s one adviser compared to the whole vertical integration movement doing the same thing (flogging their own product above strategy).
Actually it was the same problem. Flogging in-house products at the expense of client best interest
Yes correct, nobody should be able to have their own in house product. Although then again, few people understand what a SMA/MDA actually is and consider that an in-house product even if its exactly the same stocks that would be recommended directly.. Just reduces transaction cost as its not calculated on an individual basis.
Good to see Henderson out of the industry though.
We shouldn’t have in house products but then again an SMA/MDA saves transaction costs ? We really are confused aren’t we.
The deep pockets to pay for their mistakes. How did they get deep in the first place?
I absolutely loved that reference……..we’ll make so much money we can compensate you if/when we get caught.
AMP and the Banks providing advice clearly has not work. Why keep doing the same thing over and over, expecting the same result. Financial Planning will never be a profession whilst we continue to hitch our wagons to Banks and product manufacturers. How’s that FASEA and FoFA working out for you? We’ll continue to be over regulated, victims of Government intervention whilst ever this relationship continues. Time to end it I say.
Dover and Henderson Maxwell show the alternative isn’t any better. Those in glass houses.
AMP should not be allowed to have any voice into this AT ALL. Their conduct has been so poor that they should say nothing and accept whatever that is decided.