True Advisors versus 'Product Sellers'

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In the wake of the Banking Royal Commission, the distinction between ‘product sellers’ and realFinancial Advisors seems to have been lost on the media and legislators. With the misdeeds of a very few, an entire profession (there are 18,000 financial advisers in Australia) has been unfairly tarred with the same brush, and left to pick up the pieces. 

This commentary recently appeared in IFA Magazine and I think it summarises our frustrations with the media coverage of the Banking Royal Commission perfectly...

Townsend’s Business and Corporate Lawyers principal Peter Townsend has defended financial advisers in the wake of the royal commission’s review of the industry and subsequent media outrage.

In a statement, Mr Townsend said the conversation around financial advisers following the royal commission’s review of the industry (which ran from Monday, 16 April till Friday, 27 April) overlooks a number of important issues.

“Financial planners in this country are copping a kicking that they just don’t deserve. Having watched the royal commission dish it out, and then read the media’s ‘outrage’, I smell a witch hunt and I simply have to point out some things which seem to have been missed in all the ‘courtroom drama’,” he said.

Mr Townsend noted that “there are in the order of 18,000” advisers in Australia, and the number of those who have appeared before the commission is not only “ridiculously small” but that sample is also already skewed.

“They’re the ones the ‘counsel assisting the commission’ have the dirt on,” Mr Townsend explained.

Additionally, the constant changes being made to legislation in the advice space means advisers need to do “much more professional development than your average solicitor” just to keep pace.

“The view that the majority of financial planners are money-hungry spivs is completely wrong. The many that I’ve dealt with have been honest, hard-working professionals who’d do just about anything to ensure their clients are well looked after,” Mr Townsend said.

“That is not to say that the issues raised before the commission are not serious, pervasive, distressing and regrettable. They need to be fixed, but the fix does not have to come by smearing all financial planners with the brush of deceit and dishonesty reserved for the dishonest, self-interested or negligent few.”

Mr Townsend said efforts should be made to better educate the public as to the role and value of financial advice, adding that confusion over the differences between product sellers and true advisers has also “been rampant” among legislators.

Royal Commission Fallout

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By the end of the week, the Royal Commission contained all the ingredients of a cheesy 1980s cloak and dagger TV drama. Culminating in the stress induced hospitalisation of a CEO, this week's onslaught would have almost passed for entertainment, if the findings weren't so utterly disappointing. The damage impacted consumers, professional financial planners, corporate regulators, industry associations and, at hip-pocket level, the big-four banks.

Much of this could have been avoided if previous governments, along with the media, had taken these matters more seriously when they had the opportunity. Over the last decade or so it often seemed to me that the warning signs along the way were either too obscure to fully understand, or just too boring for anyone to bother digging any deeper, and so a toxic culture continued, occasionally 'rebranding' for public consumption. 

As a self-licensed financial advisor of over 35 years, much of what was revealed was hardly a surprise - AMP's 'Buyer of Last Resort' scandal, Westpac's 'liar' loans, CBA's fees for no service breaches, etc, etc - these are all symptoms of a broken business model in desperate need of an overhaul.

But this is healthy.

Its never much fun to see your profession thrown under a bus. Its personal and grossly unfair to the majority of advisers and institutions doing solid work. However, the optimist in me sees this as a healthy, long overdue 'purge'. And thanks to some outstanding investigative work, the Commission's findings are likely to finally stick this time around - this PR nightmare won't go away for the banks (or AMP), there will be consequences. 

At the risk of sounding dramatic, my instinct is that a revolution is quietly taking place, one that will usher-in lasting change, bringing tangible benefits to consumers, the 'real' advice profession, and the Australian economy. Tougher laws, higher educational standards and technological disruption is coming. So stay tuned. The future looks bright.

Rick Maggi

 

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RIP Stephen Hawking

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Stephen Hawking, the brilliant British theoretical physicist who overcame a debilitating disease to publish wildly popular books probing the mysteries of the universe, has died, according to a family spokesman. He was 76. 

Considered by many to be the world's greatest living scientist, Hawking was also a cosmologist, astronomer, mathematician and author of numerous books including the landmark "A Brief History of Time," which has sold more than 10 million copies.

With fellow physicist Roger Penrose, Hawking merged Einstein's theory of relativity with quantum theory to suggest that space and time would begin with the Big Bang and end in black holes. Hawking also discovered that black holes are not completely black but emit radiation and will likely eventually evaporate and disappear. 

Hawking suffered from ALS (amyotrophic lateral sclerosis), a neurodegenerative disease commonly known as Lou Gehrig's Disease, which is usually fatal within a few years. He was diagnosed in 1963, when he was 21, and doctors initially only gave him a few years to live.

The disease left Hawking wheelchair-bound and paralyzed. He was able to move only a few fingers on one hand and was completely dependent on others or on technology for virtually everything -- bathing, dressing, eating, even speech.

Hawking used a speech synthesizer that allowed him to speak in a computerized voice with an American accent.

"I try to lead as normal a life as possible, and not think about my condition, or regret the things it prevents me from doing, which are not that many," he wrote on his website.

"I have been lucky that my condition has progressed more slowly than is often the case. But it shows that one need not lose hope."

Shorten's Tax Proposals

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Yesterday, the Opposition Leader revealed a new policy to abolish the ability for individuals to claim cash refunds on excess imputation credits that had not been applied to offset tax liabilities.

Mr Shorten said the abolition of the benefit would result in an additional $5.6 billion to the federal budget bottom line and reduce “unfair revenue leakage” that disadvantages voters in lower income brackets.

I believe the exact opposite would occur. 

By denying the lower income tax rate taxpayer a chance for a refund of the imputation credits, Mr Shorten is actually denying a low income person the tax credit whilst still taking more tax off the higher income taxpayer.  

In other words, Imputation tax credits on dividends actually redistribute wealth to lower income investors and take wealth off higher income investors.

Mr Shorten's proposal (and Industry Super Fund's David Whitely's enthusiastic support for it) is a cynical political calculation. They're essentially betting that their constituents will be so distracted with the usual class warfare sound bites that they'll forget to do the maths.

Rick Maggi