A royal banking commission heard a litany of examples of inappropriate financial advice and misconduct including multiple cases of consumers paying ongoing fees and failing to receive regular advice reviews, as it started its inquiry yesterday into financial advisory services.
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.
ASIC deputy chairman Peter Kell who testified before the commission yesterday said that 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 said.
Number of advisers
The number of financial advisers in Australia has increased by 41% from around 18,000 in November 2009 to more than 25,000 currently, the commission was told.
Mr Kell said that 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.
The commission heard that the financial planning industry's professionalism has not kept up with its growth, with systems often geared towards collecting revenue ahead of providing services, reports Radio Australia.
"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."
He also noted that the sector lacked a single dominant professional association, which may explain the lack of consistent professional standards across financial planners.
Senior counsel assisting the commission, Rowena Orr QC, told the hearing that only 35% of financial advisors had informed ASIC that they had a university degree of bachelor level or above.
There are however new education requirements to be implemented on 1 January 2019. 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 1 January 2024.
A new code of ethics will come into force on 1 January 2020.