A switch in the mentality behind remuneration in financial services could be the first step towards rebuilding trust with consumers according to one chief executive.
APIR Group chief executive Chris Donohoe told Investor Daily that said remuneration structures, particularly with bank-aligned advisers, don’t work.
“Remuneration structures don’t work in a way. Because they are remunerated on sales largely so that will drive behaviours. Whistleblowing, and those sorts of things are very much scorned upon,” he said.
Mr Donohoe said that if there was a situation where that thinking was reversed and people who kept on top of behaviours were rewarded for it then the industry would see change.
“If we can switch that mentality around, I think that will increase the credibility of the industry around and perhaps we can legitimately move to a fee-for-service model,” he said.
People pay for accountants and lawyers and other services so why wouldn’t consumers pay for their financial planners, said Mr Donohoe.
“Why do we feel as those we won’t pay our planner with cold hard cash rather than a commission out the back door?” he said.
Mr Donohoe said the industry would see more regulation that have to do with these things and advisers would have to deal with those.
“I have sympathy for the advisers out there because 99 per cent of them are doing the right thing, and are well qualified,” he said.
But more regulation is not necessarily the answer to the issues said Mr Donohoe but there were certainly some regulations the government and bodies need to look at.
“I don’t necessarily think we need more [regulation], but I think there are some good examples out there that we should have a look at rather than just adding another chapter to corporations’ law,” he said.
For now, though the industry had to look at the opportunity that the royal commission presented, said Mr Donohoe.
“There’s an opportunity, isn’t there, to gain some efficiencies in the industry. Really think about what are some of the plugs in the industry that could impact us,” he said.
The royal commission final report will be released shortly before the 2019 federal election which would bring with it some debate between the major parties, said Mr Donohoe.
“There could be some stifled debate pre-election, Labor pushed for it so they will stand by their position on it and the other side of the house will just have to take what comes out of it,” he said.
Mr Donohoe expected, though, that there would be an opportunity after the report to really sit back and look at it.
“I dare say there will be another interim body, that’s my opinion, to sit back rather than having knee-jerk things happening out of Treasury or ASIC. I’d like to think they can sit back and digest with the right group of stakeholders and do that streamlining,” he said.
Eliot Hastie is a journalist at Momentum Media, writing primarily for its wealth and financial services platforms.
Eliot joined the team in 2018 having previously written on Real Estate Business with Momentum Media as well.
Eliot graduated from the University of Westminster, UK with a Bachelor of Arts (Journalism).
You can email him on: [email protected]