Destitute-Park-Bench-917074 (1)Everyone agrees that the Financial Advice system as it stands now in Australia is rotten to the core. When Financial Advice and Planning Centres began springing up in the mid 1980’s the institution was barely regulated. What ensued was a slew of self-aggrandizing fraudsters intent on lining their own pockets to the detriment of their clients. Investments would be made, not in the client’s best interests, but according to which fund gave the financial adviser the best kickback. Outrageous commissions would be charged for advice that was little more than a track tip, and (the most insidious of all) trail commissions were applied to clients requiring them to pay for their one off meeting with the advisor for years to come – regardless of how their stock or fund performed.

The problem was (and still is) that financial advisers are not held accountable for the advice they give. If a client loses all their money from bad advice, and that advice is not found to be fraudulent, then the advisor merely shrugs his or her shoulders, takes their commissions and moves onto the next sucker.

Last year the Labor Government introduced a Future of Financial Advice Bill. It enshrined in law (for the first time ever) that a Financial Adviser or Planner had to act in the best interests of their clients.

But the FoFA was fundamentally unworkable. Financial Advisors warned that they could only act in good faith. Several test cases showed the difficulty: In one case a Perth man lost a vast sum of his investment on the advice of his Planner. He sued the Planner claiming the advice he FoFA-Ready_SPOTreceived was not in his best interests, but the best interests of the Planner. This is, of course, virtually impossible to prove. Even though the plaintiff’s lawyer pointed out other more promising investments available at the time, the Planner said he was simply unaware of them. ‘I cannot,’ he told the court, ‘be expected to know everything.’

The case was settled in the favour of the defendant. The Planner kept his commissions, his license, and his practice. The plaintiff was left to rebuild his life from scratch.

Test cases pointing out the flaws in FoFA have prompted the government to take another look at the laws governing the Financial Planning and Advice industry. Already the Labor Government has begun dumping aspects of FoFA that are patently f no use. However, the pruning is not being replaced by any better laws. Even those within the industry believe the virtual deregulating of the industry is opening the way for more even less scrupulous agents.

Authorities within the industry are appealing to Finance Minister Mathias Cormann to either leave FoFA in place or take a more measured approach to the changes. They are concerned that an over deregulation of the system will herald a return of the 80’s high-pressure, snake-oil stock salesmen.

Perhaps they need a little time to dig up their old play-books?

Leave a Reply

Your email address will not be published.