Royal Commission Key Issues

The Royal Commission, which we initially dismissed as irrelevant to our clients and our practice, has morphed into an investigation on many aspects of the Australian financial system, including financial planning. Enough clients have now enquired for us to accept that the Royal Commission has had some impact on confidence in the institutions.

Consequently, below we address some of what we see to be the key issues, how they impact on you as a client and whether there are any areas that could impact our services to you.

At the outset, we have to express complete frustration that we are even wasting ink on these matters. Please read the following with the thought in mind that FB Wealth Management is no apologist for the institutions. However, we must also be pragmatic in our quest for optimal outcomes for our clients.

Should we trust the big banks?

The short answer is “it depends!” Perhaps a better response is “compared to what?” A small bank? Money under the bed? A union fund? Credit union? Overseas bank?

The big four banks have held a position of trust for way longer than they deserved. The local bank manager, who knew all the nearby businesspeople and householders, was replaced by a salesman. This decision was made by another salesman (executive) and so it continued all the way up the chain to the head salesman (CEO).

Unfortunately, the Australian public allowed the banks to retain the goodwill earned by all those local respected bank managers, long after they had been consigned to the scrapheap. Like lambs to the slaughter customers lined up to be sold, cross sold and oversold in the mistaken belief that the bank would look after their interests. I wish I had a dollar for every time I have uttered the phrase “the bank is not your friend.”

The public has certainly been duped, but in defence of the banks, the public has had about 30 years to wake up. Banks are sales machines. In that regard, they are no different to a car yard and once we all realise this it is much easier to use the institutions in the manner that best suits our own needs, not theirs.

Should we use the big banks?

A different question! We like the financial strength of the big banks. We like the capital and resources they can bring to product development. We like the fact that they are publicly listed and as a result there is some external vigilance on their behaviour.

Therefore, we will definitely continue to use the platforms of the big banks, as secure facilities to invest your money in investment funds of our choosing. We do not for one second believe that an investigation into any of the other banks or super funds would not uncover any misdeeds.

For that matter, pick any professional occupation and you will undoubtedly find a scandal if you look hard enough.

Should you trust financial planners?

The Royal Commission has exposed misconduct by institutions who own financial planners. Interestingly, these institutions range from very large i.e. the banks and AMP to smaller firms and some in between. A common thread though, is that many of them are now either selling out or simply walking away from their disastrous businesses.

This is particularly upsetting to us, as we will almost certainly be saddled with even more cost and regulation due to the actions of those who will not even be around to share in the increased bureaucracy.

There is no doubt that individual financial planners have been involved in actions or inactions sanctioned by their employers, but does this mean that planners should not be trusted?

We believe it is everyone’s responsibility to be vigilant with their life savings. In this regard, we cannot be insulted if a client asks probing questions about our business, our processes, our sources of remuneration and any other issues that they believe may impact on our ability to provide quality and trusted advice on an ongoing basis.

The commission is going to show that dishonesty is not confined to large institutions or to small practices. Dishonesty is simply something that some people do and no amount of legislation will prevent people from trying to do the wrong thing at times. Wherever there is money, there is greed.

Should you trust us?

You can imagine that over a period of 30 years, I’ve given a great deal of thought to how we can ensure clients feel safe when entrusting their life savings with our firm. Some of the actions are structural and some are philosophical.  For example,

  • We do not operate a trust account. All client monies flow from their own bank accounts to those of the institutions and vice versa.
  • We do not operate or own any investment structures into which we would place client funds. We believe that the basis of a fiduciary relationship with our clients is to be seen as an intermediary, with no connection or obligation whatsoever to those investments or products being recommended.
  • The vast majority of clients are referred to us by other clients or accountants and solicitors who have known us for many years. Aside from our desire to impress and assist new clients, there is an added responsibility to the person who provided the referral. In effect, this creates a cobweb of interrelationships, such that inappropriate advice on our part could be quickly disseminated across our client base.
  • We have placed a great deal of emphasis on education and training for ourselves and our staff over the years. We do not believe that education on its own will guarantee honesty or even competence, but it at least indicates that we view our roles and our careers as being long-term. Fly by night operators can move quickly into and out of an industry without the need for extensive training or compliance. This is not the case if you want to remain in the one business for 30 years.
  • We obtained our own Australian Financial Services Licence over 20 years ago, which is a way of ensuring that we could place our clients’ needs ahead of those of any institution. The scandals exposed by the Royal Commission give some indication of the pressure subjected upon many of those advisers who do not have impartiality in the products that they recommend. We feel some level of vindication in the decision we made so long ago.

Our team hold some of the highest financial designations recognised worldwide, and we value your trust in us to always act in your best interests.  We pride ourselves on developing life-long relationships with our clients, and look forward to working with you for many more years on your wealth management journey.

Naturally, if during the course of the continuing Royal Commission, you hear stories that cause concern, you are more than welcome to give us a call to discuss and put your mind at ease.