The financial services royal commission has been told that there has been a rapid increase in the number of financial advisers, but less than half of them have told the regulator they hold a relevant university degree.
Senior counsel assisting the commission, Rowena Orr QC, told the hearing that the number of financial advisers has increased 41 per cent from around 18,000 in November 2009 to more than 25,000 currently.
The first witness in the current fortnight of hearings is ASIC deputy chairman Peter Kell.
He said the financial planning sector emerged mainly out of commission-based life insurance sales before gaining momentum with the introduction of compulsory superannuation.
“[It’s] a relatively new industry,” Mr Kell said.
“It emerged in a significant way in the 1980s and thereafter.”
Mr Kell also noted that the sector lacked a single dominant professional association, such as exists in fields such as medicine, which may explain the lack of consistent professional standards across financial planners.
The regulator sees this as a key factor in some of the behaviour that falls below community expectations and is not in the client’s best interest, such as the fee-for-no-service scandal.
“The firms in question prioritised the revenue from their advice businesses over the provision of services to the clients,” Mr Kell told the commission.
“We found in all the instances that the systems that underpinned the ability to collect revenue were better developed than the systems that ensured that the client received the advice service.”
Commissioner Kenneth Hayne made a general characterisation of the three main types of misconduct identified in financial advice.
“Selling what you can’t deliver, selling what you won’t deliver and selling what you don’t deliver,” he said.
Mr Kell said most of the cases being looked at in the current hearings fell into the third grouping.
“In this instance, the don’t deliver would characterise the majority of the cases that we’re talking about, with some of the can’t deliver perhaps being mixed in there as well,” he responded.
Degree of unprofessionalism
Ms Orr told the commission that only 35 per cent of financial advisors had informed ASIC that they had a university degree of bachelor level or above.
There are new education requirements coming in on January 1, 2019, which will be monitored by a Commonwealth standard setting body.
New financial advisers must have a relevant university level degree and sit an exam.
Existing advisers will have two years from 2019 to pass the exam and must reach a standard equivalent to a relevant university degree by January 1, 2024.
A new code of ethics will come into force on January 1, 2020.
At the time the Federal Government announced these changes, in February 2017, Financial Services Minister Kelly O’Dwyer argued they removed the need for a royal commission.
“A royal commission will not benefit consumers, will take years to complete and will cost the Australian taxpayers millions of dollars,” she said in a media release at the time.
Ms Orr said it was estimated that the financial advice sector generated $4.6 billion in revenue in financial year 2015-16.
She also said it was a concentrated market, with the big four banks and AMP holding a 48 per cent market share by revenue, with 38 per cent of advisers working under their umbrellas.