We witnessed Senior Executives reluctantly responding to difficult and probing questions. We heard admissions of charging for services not provided and of retaining deceased clients on fee paying arrangements.
We heard about a need to recommend changes in product where perhaps the only reason was to generate fees.
Several Financial Advisers have been named and shamed for facilitating some of these doubtful practices, casting doubt and suspicion on all Financial Advisers. More on this later.
If the Commission want to really understand the culture that resulted in the issues being investigated and revealed, they need to stop interviewing the most senior of executives.
To get to the bottom of the culture that facilitated the matters that have shocked us, they need to talk to Senior Line Managers, those who were responsible for promoting and executing the strategies that were put to clients.
I suggest far more would be revealed if they called one or two State Managers, past and present of the Bank Financial Advice businesses to appear before them.
Further, call for testimony from Managers who actually had Financial Advisers reporting to them and hear what they have to say.
All Financial Planning businesses have a process of assessing the quality of advice being provided and to report accordingly. Let’s hear from some of the operatives performing this work.
Many enterprises be they charitable, sales focused, manufacturing, service related or financial provide performance incentives for employees, contractors and distributors.
By definition, these incentives reflect the behaviours and focus required and expected. It is reasonable to expect these incentives trickle down from the top of the organisation all the way to the operatives.
In a Bank, it is reasonable to assume the requirements the Board has of the Chief Executive Officer and their Executive Team are reflected in the behaviours and actions of the Financial Adviser operatives and the incentive schemes down the line will promote these behaviours.
The major banks are relative new comers to the Financial Advice business and invested a great deal of capital in the acquisition of established businesses. I assume there was an expectation that a return on capital would be a priority.
By definition, I assume the incentive schemes in place would reflect a clearly prioritised a need for revenue.
The trickle-down effect of this is line managers being pressured to produce income and therefore managing the activities of Financial Advisers in such a way as to produce revenue. If successful, the rewards received by the Adviser, their Manager and all those through to the CEO would be significant. The incentive program will have achieved the desired result.
Let me look at a specific area of concern raised at the Royal Commission and how this may have come about.
An Adviser may sign a client up for ongoing services where their plan will be looked at and tweaked annually.
The Adviser may receive “credit” for the ongoing service fee in the first year only and be rewarded accordingly. Their Manager, and their Managers’ Manager would also receive credit towards their personal performance in the first year only because that is the way the incentive scheme is designed, from the CEO down.
When presented with the choice of spending time seeking a new client for which their will be a first-year incentive or servicing “last year's” client, is it any wonder the Adviser, their Manager and their Managers’ Manager wants to spend time and effort on the new client? Again, the incentive scheme is working even though the client is suffering as it has been designed to do.
Calling Line Managers to provide testimony will uncover the nuts and bolts of what has been happening and why and the pressures they have been under to execute the processes now being called in to question.
As for those performing advice quality reviews, I would like to hear from them as to what actually happened when they raised concerns. I would like to here if they had any say in resultant remediation action or if reports they provided were overlooked or “conveniently” explained away depending on how valuable someone was to the ever present need and incentive to deliver revenue.
My concern is that Financial Advisers will be largely blamed for the wrong doings being exposed at the Royal Commission.
I am not suggesting all Advisers are perfect or all are blameless.
However, I do know the vast, vast majority of Financial Advisers take a great deal of pride in their work and the professionalism with which they perform it.
Further, I also know the vast majority are motivated to deliver excellent advice and recommendations that will improve their client’s financial position in accordance with each clients individual goals and objectives.
Unfortunately, great outcomes for clients don’t make headlines.
There are many very good, ethical and motivated people in the Financial Advice business including Advisers, Leaders, Compliance and Quality Control Professionals, Para Planners and support personnel.
These people do not deserve to have their reputations tarnished by the practices of the few generated by the trickle-down incentive schemes designed to achieve the short-term objectives of Executive Management.
Last week, the Royal Commission uncovered many facts but little truth