Reading a recent article in a finance industry publication
(see extract below) made me think of Albert Einstein’s well known definition of
Insanity, ‘repeating the same behaviour
but expecting different results’.
Aussies
don’t trust financial planners, but all is not lost
10 August 2012 | Patrice Thomson, Wealth Professional In a recent Nielson Global Survey of
Investment Attitudes, the theme of trust – or lack thereof –weaved throughout
the findings. When it comes to trusting the recommendations of financial
advisers, the results make for a disappointing read. Just 16% of Australians
currently rely on a financial planner or adviser, with the majority (57%)
preferring to be solely in charge of their investment decisions.
I often wonder why the Financial Services industry continues
to bother conducting these surveys because the results never change and I’m
even more surprised when they are disappointed by the findings. The industry would really benefit from
referring to Einstein’s definition of Insanity as a reminder that repeating the
same behaviour whilst expecting different results is truly insane.
While I’m no genius like Albert Einstein, I do know that building
trust starts by telling the truth (my dear mum taught me that and she’s no
genius either). Yet financial
institutions like banks, superannuation companies, insurers and some advisers continue
to treat their clients like mushrooms - keeping them in the dark and feeding them
fertilizer.
Let me explain: new
legislation known as “Future of Financial Advice” or FOFA bans Financial Adviser’s
from receiving commission on superannuation. The original intent was that
insurance held within super was included in the ban. However, throughout the
development of this legislation there was extensive industry consultation, during
which the Financial Services industry argued that banning commission on insurance
within superannuation was not in the community’s interest. They argue that the majority of Australians
would not be able to afford to pay for financial advice, but rather that commission
was a much more sensible methodology for advisers to be remunerated.
In my opinion this is a load of ‘fertiliser’ designed to grow
a terrific crop of mushrooms. What the
industry fails to mention is that within a standard retail insurance policy the commission component increases the
premium by 25-30%, not only in the first year but each year the policy is
in place.
Surely instead of caving in to big corporate interests
the government should legislate to provide clients with the choice to pay by
either commission or flat fee.
So if the average Australian (read ‘mushroom’) is paying
$3,000/pa for Life, TPD and Income Protection insurance, including commission adds
an extra $10,000 to their premiums over 10 years. Please tell me how is that in anyone’s interest? Now compound the lost return on your superannuation
balance over your lifetime and imagine the difference this makes to your
lifestyle in retirement.
Now I recognise that adviser’s should be paid, but surely
separating their remuneration from the products they recommended is a no
brainer and no government should have to legislate common sense. When will this
industry understand that commission taints advice; is the most expensive way for
clients to pay for service; reduces
people’s super account balances and is damaging their future retirement
lifestyle?
I notice that the next issue on the Financial Services
reform agenda is what to do about churning,
the practice of an adviser recommending the replacement of your existing
insurance policy with a new one every couple of years, resulting in new
commissions. Doesn’t this practice again
prove that there is something fundamentally wrong within the walls of the
Financial Services institution?
The refusal to
embrace FOFA and get rid of ALL commission, while expecting us to view the
industry as a trusted group of professionals is indeed unequivocal proof of
Einstein’s Theory of Insanity.
What do you think? Post your comments if you feel as strongly about this as I do or feel free to Contact Us if you want to have a chat about the insurance within your superannuation.