Today’s federal government announcement that it will establish a statutory body to enforce professional standards for financial advisors has again highlighted the toothless nature of the Financial Services Council’s own code of practice, Maurice Blackburn Lawyers said today.
Maurice Blackburn Principal Josh Mennen said while more details were needed on the new statutory body, the initiative was a welcome first step in taking a tougher approach to the monitoring and management of the financial planning industry.
“A legally binding uniform code of ethics could better mandate professional standards across the much troubled financial services industry.
“It is deeply concerning that the FSC’s code of practice, which is largely a restatement of the law, has not been approved by ASIC and therefore lacks proper oversight. It’s another example of the industry’s failed attempt to self-regulate.
“The FSC is refusing to submit its code of practice to ASIC for another 18 months which means any financial adviser who breaches of the FSC code cannot be disciplined or sanctioned,” Mr Mennen said.
“With no enforceability, the code of practice means very little to the consumers who have been wronged due to poor conduct in the industry.”
Meanwhile, Maurice Blackburn Lawyers is concerned the new professional standards announced by the federal government today fail to address the issue of vertical integration (cross-selling) where advisers recommend financial products to which they or their company are associated.
“It’s the elephant in the room. The government needs to intervene to end the notorious cross-selling where banks push their own products, like life insurance, when there are more suitable non-affiliated alternatives for their clients.
“The FSC code of practice ignores this problem, and industry has buried its head in the sand in the hope it will go away and allow them to get on with business as usual.
“At the moment, an advisor can get away with offering only ‘in house’ products and that can be very misleading for consumers who assume their advisor has genuinely sourced the market for the best product.
“We need the new professional standards to include a requirement that financial advisers make non-affiliated products available to their clients and meaningfully consider the most appropriate product, with like for like comparisons,” Mr Mennen said.
Such a move will help reduce conflicts of interest, provide clients with access to appropriate products and help preserve the integrity of the advice through openness and transparency.
The law firm, which acts for people unfairly treated by banks and insurers, is also deeply concerned the federal government will allow the proposed independent standards body to be funded by the banks and AMP.
“How can this new statutory authority which is being set up to govern the professional standing of the financial advice industry possibly be independent if it relies on the funding of those it’s meant to be policing?” Mr Mennen said.
Last week’s release of scathing findings by the corporate regulator shows a Royal Commission and an enforceable code of practice are the only ways to clean-up the industry once and for all.
“The ASIC report again demonstrates that there remain serious issues with respect to declined claims and claims handling, particularly in TPD claims, with Westpac declining over one third of claims.
“The Senate Economics References Committee called for a Royal Commission in 2014. Since then the industry has been given plenty of changes to fix these problems and have comprehensively failed. The situation will not improve until decisive action is finally taken by the government,” Mr Mennen said.
“It is long past time that government and the industry put claimants first with a real and enforceable code of practice and a Royal Commission,” he said.