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Financial inquiry head discusses recommendati -

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Financial inquiry head discusses recommendations

Broadcast: 24/11/2009

Reporter: Ali Moore

The Parliamentary inquiry into the financial services industry was headed by Labor MP Bernie Ripoll
and he joins Lateline Business to discuss the recommendations.


ALI MOORE: Well as we said, the parliamentary inquiry was headed by Labor MP Bernie Ripoll and he
joins me now from Canberra, welcome to the program.


ALI MOORE: Your report recommends changing the Corporations Act to include a fiduciary duty for
financial planners to ensure the interests of their client is put ahead of the interests of their
own, and also that remuneration structures in conflict with that duty should be removed, but you
are not prepared to legislate to ban commissions, why not?

BERNIE RIPOLL: What we are saying in this report, is that we want Government to consider looking in
support in consultation with the industry to look at a method of mechanism to cease payments from
product manufacturers to advisors, it's an important step covering all payments, be they
commissions, volume payments, shell fees, so it's a broad and bold recommendation that looks at all
payments from product manufacturers to advisors.

BERNIE RIPOLL: You say it's broad and bold. Words like consulting and supporting the industry and
trying to find the most appropriate mechanism, it's a lot less and stops short of what many,
including the regulator call for, which was an outright ban.

BERNIE RIPOLL: Well, no, what it does is looks at the appropriate mechanisms. We are, as a
committee, prepared to go as far as saying we believe this needs to happen, that's what we said in
the report. What we need to do is consult with the industry, I don't think anyone expects less of
us in terms work we have done, we need to talk about the best mechanisms to move forward, it should
be done in consultation, it's not about handing down a report saying this will happen tomorrow,
it's about acknowledging there'll be some transition and some work needs to be done in this area.

ALI MOORE: Is legislative change on the table or are you talking about self regulation?

BERNIE RIPOLL: It's all on the table, as a committee we decided to put it to Government, this is
our recommendation, we want the Government to take that up and look at the best way to cease the
payments, that's clear what that means to people that work in the sector, to cease payments from
product manufacturers to advisors, but with the cooperation of the industry, and I think that is
the most appropriate way to act.

ALI MOORE: You had 10 months of hearing, you're you heard something like 400 submissions, among
them were submissions that suggested if there wasn't legislative change commissions would condition
under another guise, do you believe it could be successfully down through self regulation?

BERNIE RIPOLL: The industry has had a long time to self regulate. In some parts it does it well.
Self regulation can begin today, nothing is preventing people working within the sector to work
under a different model. Many do. What we say is we believe we have received enough evidence that
we need to take further action, the committee has pointed to that, we recommended that, it's a
strong statement, we want the payments to cease, but we think it should be done in a proper way, in
consultation with the sector.

ALI MOORE: Do you have a time frame or stick if the time frame is not met?

BERNIE RIPOLL: We haven't set a time frame, we think that's an issue for Government. Government
should be setting time frames in consultation with the sector, it's the appropriate way to do this,
this is a big change, this will involve people reorganising the way they do business, some products
may need to be remanufactured in a different way. I don't think anyone would expect we'd hand a
decision down and expect the next day people will just do this.

ALI MOORE: You said earlier that it's not just commissions but ASIC called for the banning of soft
dollar incentives, volume bonuses, rewards for achieving sales targets, fees based on a percentage
of funds, rewards, all of those things you are including in your ceasing of payments.

BERNIE RIPOLL: Well, we have said cease payments.

ALI MOORE: End of story.

BERNIE RIPOLL: End of story, cease payments. That is as clear as you can possibly get. I don't
think there's any ambiguity in what we are trying to achieve. Conflicts of interest exist. We have
had more evidence to suggest that's the case. We've taken seriously ASIC's submissions and
Treasury, we want to see action in this area, but in a proper manner.

ALI MOORE: There's another side to this argument put by the retail funds represented by IFSA, that
is if a fiduciary duty to put the interest of the client ahead of other interests is adopted, why
do you need to ban payments from product suppliers to financial planners, does that not imply that
the fiduciary duty is rather limited?

BERNIE RIPOLL: No, it doesn't. The fiduciary duty needs to be an explicit one. There is an
incompatibility between the fiduciary responsibility and payments that take place, we need the
fiduciary duty as a core matter first and look at the payments. The fiduciary duty is an important
mechanism and tool to make sure the reform is done properly.

ALI MOORE: Is there a risk that that duty will push up the premiums for professional indemnity, the
costs that are already high?

BERNIE RIPOLL: I don't believe so. There is a 'cause to regulation, there's a cost to regulation
and responsibility, what we are trying to achieve in the end is ensuring that the rights of the
interests, of the clients are ahead of the interests of the advisor. The fiduciary duty is about
making sure it's the client that receives the most appropriate advice based on their needs, not on
somebody else's.

ALI MOORE: You recommend that ASIC take a more rigorous and targeted approach to standards of
advice, you talk about risk based surveillance and things like annual shadow shopping exercises, do
you believe ASIC failed on those scores when it came to Storm and Opes Prime?

BERNIE RIPOLL: ASIC undertakes a range of shadow shopping exercises and a range of audit

ALI MOORE: Not enough in your view, you ask for more rigorous and started.

BERNIE RIPOLL: It's never enough. That's the reality, ASIC have to deal with the consumer market,
it's enormous, it's a very tough job. There'll never be enough funding and resources for ASIC to do
what it must do, we believe it can do more, and more targeted, and we believe it can be more
effective in the way it targets certain sectors within financial services, that's what our
recommendation is about.

ALI MOORE: Did it fail in that duty when it came to things like Opes Prime, and Storm Financial,
which triggered the inquiry?

BERNIE RIPOLL: There are question marks around the events and what took place, we are satisfied we
have dealt with the issues, through the report, and that ASIC heard the message from us, and
believe that ASIC is working hard to ensure these things don't happen again in the future.

ALI MOORE: The other key issued tied with making sure it doesn't happen in the future is the
question of licensing requirements for financial advisors, you don't think those selling products
should be licensed differently to those giving independent price and you've also ruled out
licensing individual planners, does that imply everything is OK with the licensing system?

BERNIE RIPOLL: Not at all. What is demonstrates is as a committee we didn't want to overload the
sector with more regulatory burden, or that there was real value to be gained in adding a layer of
complexity with further licensing. The current licensing regime needs to be rigorously enforced,
but certainly the way it currently operates we feel is sufficient. We need to lift the standards,
left the impact of advice, lift the educational base within the sector, we don't believe you should
have to individually licence every person that works within it.

ALI MOORE: If a system doesn't change, there'll be big issues once you stop all payments as we
heard in the earlier story. At the moment if you are a planner and licence the through a larger
organisation and you are reliant on them for their income, under the changes you are seeking to
have in force, you wouldn't be reliant on them for income, but you would for the licence.

BERNIE RIPOLL: What we are looking at is not one solution, but a suite of solutions, one of the
things we talk about in the report that is critically important is the fact that all of these
reforms need to happen in concert, together to give the best outcomes, just simply picking one out
won't be a solution, there are no silver bullets in the end. You are talking about substantial
reform within the sector, it needs to be done progressively, in consultation, and the reforms need
to happen together to get the best outcomes, in the end you look for quality advice, making sure
there's no conflicts as best as possible and minimise the opportunity for the Storms of the world
to happen again.

ALI MOORE: Do you think the victims of the Storms of the world or the Opes Primes will be happy
with this?

BERNIE RIPOLL: I hope they can feel some satisfaction that through a range of places their issues
are being seriously dealt with. This report, and this committee's work is just one part of range of
things that are taking place. There's a court case in Brisbane, ASIC are doing a separate review,
there's a number of resolution schemes and compensation schemes. Our job is to look not only at
Storm and what took place, but across the whole sector, we are looking to make wholesale
improvement. If we get that right and the reform right we'll minimise the opportunity of the storms
happening again.

ALI MOORE: I assume you want in the sorted within a 2 year time frame, you say it's up to
Government. You are a Labor MP.

BERNIE RIPOLL: That's right. It's a great report, the committee has put a lot of work and effort
into the report, we have received a lot of evidence. There's a lot of merit in our recommendation.

ALI MOORE: Would you like to see a time frame?

BERNIE RIPOLL: Look, in the end it's up to Government. I would like to see the report adopted, but
we have carried out our responsibilities, we are happy with that, I'm happy with that. If anything,
my work continues in terms of trying to reform the sector, and as best as possible provide consumer
protection balanced with a good efficient market.

ALI MOORE: Thanks for joining us.