Storm Financial Group

[Julia]

Bernie Ripoll was briefly interviewed on ABC Radio this evening when the report was tabled. When asked for the main resolution to come out of the nine month enquiry he proudly announced that henceforth financial planners would be required to make the financial wellbeing of their clients their first consideration, rather than their own profits.

Isn't it just staggering that what should be so utterly ethically obvious seems to have to be an official dictate from a government enquiry!

As so many Stormers have said, they consulted financial planners in the implicit understanding that the planners were being contracted to act in the interests of the clients.

Just a naive dream, folks.

 

[Mindstorm]

Bernie Ripoll was briefly interviewed on ABC Radio this evening when the report was tabled. When asked for the main resolution to come out of the nine month enquiry he proudly announced that henceforth financial planners would be required to make the financial wellbeing of their clients their first consideration, rather than their own profits.

Isn't it just staggering that what should be so utterly ethically obvious seems to have to be an official dictate from a government enquiry!

As so many Stormers have said, they consulted financial planners in the implicit understanding that the planners were being contracted to act in the interests of the clients.

Just a naive dream, folks.

Thanks so much for this Julia.

Yes, it is quite staggering that Mr Ripoll thinks that 'in future' financial planners should be looking after their clients interests!

If we go to a doctor, dentist, pharmacist, radiologist, cardiologist, oncologist, etc., etc., we pay good money to them for 'their expertise', and expect that they are looking after our wellbeing. It would seem that we can pay way over the odds to a 'professional financial planner', way more than any other professional, and expect that they have, until now, been looking after their own financial situation rather than the situation of those who are paying them for their advice.

MS

 

[Solly]

"Rudd Government to investigate compensation scheme after Storm Financial collapse"

November 23, 2009 11:00pm
A LAST-resort compensation scheme to bail out investors will be examined by the Rudd Government in the wake of the $3 billion collapse of Townsville-based Storm Financial.

More by Stefanie Balogh and Emma Chalmers in The Courier Mail here;

http://www.news.com.au/couriermail/story/0,23739,26392230-3102,00.html

 

[Solly]

"Tough laws to avoid new Storm collapse"

"INAPPROPRIATE advice by financial planners and lax lending practices by banks have been blamed for the "catastrophic" losses suffered by clients of Storm Financial."

More by Nicola Berkovic in The Australian here;

http://www.theaustralian.com.au/news/nation/tough-laws-to-avoid-new-storm-collapse/story-e6frg6nf-1225802859454

 

[Solly]

The report from the Inquiry into Financial products and services in Australia

http://www.aph.gov.au/senate/committee/corporations_ctte/fps/report/index.htm

 

[Solly]

"Storm report recommends overhaul"

"A PARLIAMENTARY inquiry investigating the collapse of Storm Financial has recommended the banning of commissions and the introduction of a fiduciary duty on financial planners to act in the interests of their clients."

More from Tony Raggatt in the Townsville Bulletin here;

http://www.townsvillebulletin.com.au/article/2009/11/24/95911_news.html

 

[Solly]

"After the Storm, shift on planners"

"A REVOLUTION in how customers pay financial planners is likely after a long-awaited parliamentary committee tables its recommendations late tonight."

More from Stuart Washington in Business Day here;

http://www.businessday.com.au/business/after-the-storm-shift-on-planners-20091122-istg.html

 

[Solly]

"Planners face crackdown on licences"

"Financial planners are set to win a reprieve from a ban on commissions but will be forced to adopt tougher professional standards and licensing under a wide-ranging reform plan."

Read more in The Australian Financial Review of November 23, 2009.

 

[Solly]

"The Storm Report"

For those interested, see today's printed version of The Courier Mail for more details and interesting reading regarding the saga.

 

[Judd]

Right, so all necessary ethical behavior will, in future, be resolved. BS.

All unlisted products as recommended by financial planners, with their inherent conflict of interest, will be banned. BS. Mind you such products do have the advantage for some in that it is a form of forced saving and small amounts can be put in on a regular basis. But for mine the internal cost of them is way, way too high.

If applying for a margin loan, the lenders will be required to know your exact financial details, which enables the potential for cross selling, even though you may not want them to know all things about you. Already in the pipeline.

Watch the cost of financial planning increase as a result of this BS which means that those who do need it and are scared of their own shadow when it comes to finances will probably not be able to access it.

Watch for the demise of truly independent financial planners as a consequence and the further consolidation of financial planning, if you wish to call it that, into the hands of the majors.

Friggin nanny state.

 

[Solly]

"Storm serves as warning"

"A LANDMARK inquiry sparked by the collapse of Storm Financial has stopped short of calling for laws banning commissions in financial planning, instead placing the decision in the hands of the Government."

More by Ruth Williams and Peter Martin in The Age here;

http://www.theage.com.au/business/storm-serves-as-warning-20091124-j9c9.html

 

[Solly]

"Fees find foe, but no giant steps"

"AFTER nine months and thousands of pages of submissions, a parliamentary committee last night squibbed the chance to rid the financial planning industry of distortionary payments."

More by Stuart Washington in The Age here;

http://www.theage.com.au/business/fees-find-foe-but-no-giant-steps-20091124-j9e8.html

 

[Temjin]

Banning all forms of commission and legally require all financial advisers to NOT ONLY just recommend "approved listed" products will certainly reduce the conflict of interest out there.

Those two were the only reasons why I decided to not further pursue the financial adviser career. I just cannot accept taking in commission and only recommended a limited list of products make it hard for me to properly put my potential clients interest ahead.

As if anyone have seen financial advisers actually recommend others to buy precious metals, commodities and ETFs (like gold stocks, oil stocks, BRIC / emerging countries, etc) as an alternative to managed funds.

 

[doctorj]

Product providers have little if any direct distribution capacity and rely on intermediaries to sell their product. If you ban commissions, how are intermediaries remunerated? It takes a long time to close a sale and distribution costs are high (time, training, insurance, other overheads etc). Clients would need to pay the fee up front – sale volumes would fall through the floor as the vast majority of savings and protection products are SOLD not bought.

Without a sensible alternative, you risk destroying an industry. Advisers, brokers and agents need to make a living doing what they’re doing, or they will do something else. Without distribution, products don’t sell. Let’s not forget savings/protection are a good thing for all parties – when properly sold, the client gets what they need and the economy gets a savings pool which is vital for investment.

Miss-selling is a huge issue and is the world over. I don’t see getting rid of commissions (and volume linked incentives) as the answer. Perhaps a sensible alternative is to impose some kind of commission clawback on the adviser when a client’s scheme fails. Then at least they have some skin in the game alongside their client.

 

[cuttlefish]

Without a sensible alternative, you risk destroying an industry. Advisers, brokers and agents need to make a living doing what they’re doing, or they will do something else. Without distribution, products don’t sell. Let’s not forget savings/protection are a good thing for all parties – when properly sold, the client gets what they need and the economy gets a savings pool which is vital for investment.

Dr J - there's no reason that the distribution arms can't exist for financial products - just don't let the people that sell them call themselves financial planners/advisors.

I don't go to see a Pharmacist for medical advice why should I go to an insurance/investment product salesman for financial advice. If my Dr advises me to take a certain medication I'll go and buy it from a pharmacist. Along the same lines - if a Financial Advisor/Planner recommends an insurance product then the client can go an purchase it from the distributor of that product.

Sure there will always be some blurring of the lines but by at least making it illegal for financial planners/advisors to receive commissions for products it will remove one level of conflict of interest.

 

[doctorj]

Dr J - there's no reason that the distribution arms can't exist for financial products - just don't let the people that sell them call themselves financial planners/advisors.

Fair suggestion. So how do they draw the line between advised and unadvised sales? Can a non-financial adviser provide a product recommendation? If not how do they sell?

 

[-Bevo-]

"Rudd Government to investigate compensation scheme after Storm Financial collapse"

November 23, 2009 11:00pm
A LAST-resort compensation scheme to bail out investors will be examined by the Rudd Government in the wake of the $3 billion collapse of Townsville-based Storm Financial.

More by Stefanie Balogh and Emma Chalmers in The Courier Mail here;

http://www.news.com.au/couriermail/story/0,23739,26392230-3102,00.html

A LAST-resort compensation scheme to bail out investors will be examined by the Rudd Government in the wake of the $3 billion collapse of Townsville-based Storm Financial

Another silly Rudd Idea not sure how it would work but the idea that investors should be bailed out for been incompetent or taking unnecessary risk is not the roll of Governments, this may promote risk taking if the government is there to bail out people from failed investments.

 

[Judd]

I've read the report. Probably misunderstood quite a portion of it.

At no stage from the report did I get a clear understanding of what was the actual role of a financial planner, i.e. what is it exactly they are supposed to do.

Nor did I get any clear indication what the committee's views were on the appropriate level of gearing for margin loans. Is it 10%? 15%? 20%? 60% Because, in my view, this is the crux as to why most Storm clients were trashed. Sure, they were critical of the one-size-fits-all approach by Storm Financial but that is all.

Nothing really about double gearing (it's triple really as the majority of companies have debt and margin lending is against equity. Just think about that for a moment.) But they seemed to OK it since the new requirements for margin loans are to take an holistic approach. Hmmm, I roll up with $900k in unencumbered shares and ask for a loan of $100k. Why do they need to know if I have a mortgage?

Waste of time.

 

[cuttlefish]

Fair suggestion. So how do they draw the line between advised and unadvised sales? Can a non-financial adviser provide a product recommendation? If not how do they sell?

Good questions, I guess there's numerous ways it could be structured, all of which will of course have flaws, but in my view a basic starting point could be something like this:

* Licensed Financial Advisor is a regulated certification
* A Licensed financial advisor is not able to sell financial products or receive commission for the sale of financial products in any manner or form, from any party.
* The industry body for Financial Advisors markets itself appropriately and highlights this aspect of their industry and outlines the benefits
* It is illegal to market/brand oneself as a Financial Advisor if you are not certified and it is illegal to provide a statement of advice if not certified.
* Resellers/distributors of financial products do not need to be licensed financial advisors (and in fact can't be)
* Distributors of products can make product recommendations but any recommendation and any marketing material they use needs to have a disclaimer that they are not a licensed financial advisor and that before purchasing the product the client should consider seeking advice from a licensed financial advisor.
* The signing page of any purchase agreement for an investment product should have a tick box for the client to acknowledge this disclaimer.

 

[doctorj]

G
* Resellers/distributors of financial products do not need to be licensed financial advisors (and in fact can't be)
* Distributors of products can make product recommendations but any recommendation and any marketing material they use needs to have a disclaimer that they are not a licensed financial advisor and that before purchasing the product the client should consider seeking advice from a licensed financial advisor.
* The signing page of any purchase agreement for an investment product should have a tick box for the client to acknowledge this disclaimer.

That would make sense - it won't stop people from whinging and calling for more regulation ex-poste a failure. I agree that people need to take more responsibility and maybe this is a way to do it.

Financial advisers would then be limited to sophisticated, high net worth individuals who see the value and can justify an up front payment (the size of their portfolio makes it a relatively small %). The smaller, unsophisticated end of the market would be pushed towards product salespeople. Many advisers would change into sales to service the mass market. Sadly it also means those in most need of advice (unsophisticated individuals) are less likely to receive it. At least it would be more transparent and there would be fewer cases of salesmanship being dressed up as advice.