Our View on the Ripoll Inquiry
The Parliamentary Joint Committee Recommendations for the Financial Services Industry (the Ripoll Inquiry) has just released its recommendations. There are 11 proposals to further enhance the financial services industry which are:
1. The Committee recommends that the Corporations Act be amended to explicitly include a fiduciary duty for financial advisers operating under an AFSL, requiring them to place their clients' interests ahead of their own.
We would like to assure you that at Ethical Investment Advisers (EIA) are always putting your interests ahead of our own. We are making recommendations based on the best investment for you, rather than what is going to give us the best financial outcome. We can do this because our system of remuneration is not based on selling products but on fees for service.
2. The Committee recommends that the Government ensure ASIC is appropriately resourced to perform effective risk-based surveillance of the advice provided by licensees and their authorised representatives. ASIC should also conduct financial advice shadow shopping exercises annually.
3. The Committee recommends that the Corporations Act be amended to require advisers to disclose more prominently in marketing material restrictions on the advice they are able to provide consumers and any potential conflicts of interest.
You will find that in our Statements of Advice and Records of Advice that we are advising you of all fees and commissions paid to us to avoid any conflicts of interest.
4. The Committee recommends that the Government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers.
We at EIA would be very comfortable with this happening.
5. The Committee recommends that the Government consider the implications of making the cost of financial advice tax deductible for consumers, as part of its response to the Treasury review into the tax system.
Ongoing advice is already generally tax deductible, this is for up-front advice, which is
deemed to be capital in nature and can only currently be offset by capital gains.
6. The Committee recommends that section 920A of the Corporations Act be amended to provide extended powers for ASIC to ban individuals from the financial services industry.
7. The Committee recommends that, as part of their licence conditions, ASIC require agribusiness MIS licensees to demonstrate they have sufficient working capital to meet current obligations.
After the recent Great Southern and Timbercorp debacles this will be very welcome but about a year too late.
8. The Committee recommends that sections 913B and 915C of the Corporations Act be amended to allow ASIC to deny an application, or suspend or cancel a licence, where there is a reasonable belief that the licensee 'may not comply' with their obligations under the licence.
You will be pleased to hear that we have ongoing audits from external auditors, who check out all our processes and compliance and the only thing they recommended we initiate is a ‘Disaster Plan', so we are busy trying to think up all disasters and trying to pre-empt as many as possible.
We have plans in place for fire, flood, death and long term disability of advisers and staff, breakdown of IT equipment, loss of laptops/phones etc. Wherever possible we try to insure against risk, or put in administrative systems that will maintain our ongoing service to you. Many of these risks are assessed monthly at our management meetings and we are constantly looking for better ways to mitigate risks.
9. The Committee recommends that ASIC immediately begin consultation with the financial services industry on the establishment of an independent, industry-based professional standards board to oversee nomenclature, and competency and conduct standards for financial advisers.
We at EIA are already Practitioner and Principal members of the Financial Planners Association (FPA) who already have a code of ethics and require standards of ongoing education to hold the title Certified Financial Planner (CFP).
All of our advisers hold the CFP designation and maintain all the necessary ongoing education in order to hold the certification.
10. The Committee recommends that the Government investigate the costs and benefits of different models of a statutory last resort compensation fund for investors.
We at EIA currently hold Professional Indemnity insurance and are part of the Financial Ombudsman's Service (FOS). We carry all the information on this service in our Financial Services Guide (FSG). If you are currently a client, we would have provided you with a copy of our latest FSG in recent months. If you would like another copy, please let us know and we will provide one free of charge.
11. The Committee recommends that ASIC develop and deliver more effective education activities targeted to groups in the community who are likely to be seeking financial advice for the first time.
The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen said that he would take no action on the recommendations until the Cooper Enquiry reported on superannuation changes and the Henry Enquiry reported back on proposed changes to the tax system.
You can see from these articles that the current federal government are keen to be seen to be tidying up the financial services industry, which we applaud.