DFS operates as an inter-generational service firm that sustains itself through trust. Indeed, our long-term relationships rely on trust, which continues to be judged and reassessed through our ongoing behaviour and conduct. In this regard, trust must be regularly demonstrated in order to be maintained. It cannot be relied on, unconditionally. We endeavour to cultivate and demonstrate trust by working with you – not only on your personal financial strategies but by standing out from the crowd and showing leadership on issues impacting our industry and in particular on protecting your interests.
DFS is a strong proponent of: (i) fee-for-service based advice; and (ii) greater transparency, including the separation of structural advice from product (portfolio) advice, as outlined in our submission to the Commissioner on 26 October 2018. A copy can be found here.
Separation and accountability of fees provide consumers with a clear understanding of the services on which they are being charged. To us, it’s pretty clear; one of the biggest reasons why people mistrust the financial service industry is the lack of clarity on the fees being charged. Without this, trust will always be tested and likely break down.
We were anticipating key changes to be announced on this very matter in the release of the final Royal Commission report on 4 February 2019; and so was the broad industry. We were greatly disappointed. The report lacked “punch” and in our view, missed an opportunity to instigate real reforms, which most likely would have been legislated through support of the government, regardless of the outcome of the next election.
The major banks, which were the focus of the misconduct breathed a sigh of relief, having “got away” with a manageable “smack” for the misconduct. Perversely, major bank stock prices rose 4%-7.5% the following day, which pretty much says it all. Taking a cue from the Lunar year of the Pig, the “banking piggies” appear to be the big winners.
That said, we acknowledge at the outset that several important recommendations were made, which will form the foundations of change. At DFS however, our greater interest is on the recommended changes to the advice industry and specifically, how it can evolve from an arguably low point to a true profession.
While a change in culture, as recommended by the Commissioner, is a key starting point for transformation, our strong view is that certain conflicted practices which have been allowed to exist to date and which were the cause of the misconduct, need to be prescribed and legislated away. We see this as the essential requirement to effect practical change in our industry.
Our position continues to be that separation of advice is necessary in order for the industry to properly address the prevailing conflicts and become a profession. It recognises that there are 2 separate disciplines and skillsets involved. Allowing bundled-fee practices to continue post Royal Commission, will enable the current lack of transparency and accountability to persist. History tells us that without enforcement, there will be strong inertia to change at the adviser level, which increases the potential risks of less informed clients in the long run.
If clients are to be afforded protection, they must have choice; and for clients to have choice, it’s important that clear and understandable information is made available so that they can assess the value of those offerings. Separating structural advice from investment product advice offers consumes the greatest level of protection, as transparency truly promotes understanding and increases advisor accountability.
While the report acknowledged that separation of advice is important, it chose not to prescribe enforcement. In Commissioner Hayne’s view, it will be costly and disruptive. Perhaps he has confidence that this is part of the industry will evolve and regulate itself. If so, we believe it will likely be at the cost of clients’ interests, along the way.
We acknowledge that the Royal Commission cannot address and resolve all issues in our industry in one fell swoop; and for the limited time it had, it needs to be acknowledged for the way the team put everyone on notice. The clear message of “enough is enough” was directed to the industry watchdogs and the “captains” of industry. Now it’s the government’s turn to take action and legislate and then over to the regulators to better regulate.
For practices like DFS and other like-minded firms, we have invested time and resources to separate structural and portfolio advice as a proactive measure to see the industry evolve to the Next Generation Advice Model. Rather than waiting for enforcement, we have instead focused on building a transparent service offering which we strongly believe is in your best interests. Indeed, this is what we embarked on 10 years ago.
We will continue to lead by example in the belief that at some point our operating model will set the industry standard. Our Next-Generation Advice Model demonstrates ethics, integrity and resolve that puts our clients first, today.Disclaimer