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
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