A sales-driven industry culture which creates conflicts of interest between service providers clients caused the “failure” of the global wealth management industry, according to an international report which proposes sweeping reforms to improve how the sector operates.

The Network for Sustainable Financial Markets, which describes itself as an “international, non-partisan network of finance sector professionals”, has released a report entitled “Wealth Management in a Post-GFC World” which makes 15 recommendations to address market scandals and structural failings which, the authors say, “continue to plague the multi-trillion dollar global wealth management industry”.

The report is an initiative of NSFM’s global wealth management group chaired by Greg Chipman (managing director, Australia’s CJC Global) and Matt Christensen (executive director, EuroSIF). 

The two chairmen said: “This is a period of great upheaval and reflection in the global wealth management industry. “

“The level of scrutiny by consumers, government, regulators and media in Asia Pacific, North America, EMEA and other markets is unprecedented. Whilst challenging, current industry reviews and forums considering the re-design of global financial services architecture provide the perfect opportunity to develop coordinated responses to age-old problems,” they continued.

“New best practice approaches must be embraced to support global industry growth, quality outcomes for consumers, more effective regulation and broader sustainability imperatives,” they added.

The report pinpoints “systemic and structural impediments” for the industry, from the “sales driven” industry culture, an “inadequate focus on the quality of advice,” “bundled pricing, commission-driven remuneration” and “high rates of portfolio turnover.”

Other problems include a lack of service innovation “leading to highly scalable but simplistic and reactive business models at odds with consumer expectations and needs” and “fragmented and ineffective industry self-regulation”.

The recommendations include redressing the value and quality of advice; establishing clear fiduciary duties; a balanced approach to disclosure; product provider prohibitions and fiduciary/suitability obligations; addressing technical competence for financial advisors, benchmarking industry practices and addressing sub-optimal remuneration, pricing and short-termism for paying financial advisors and pricing services.

The report said that while there are high quality industry participants in a number of jurisdictions, “significant improvement is required in a number of key areas if industry growth is to be underpinned by sustainable and best practice approaches moving forward”.

“High profile corporate failures, investment scandals, tax avoidance and system problems continue to plague efforts to improve industry quality integrity and efficiency,” the report said.

“This has eroded consumer trust, confidence and prospects for optimal industry growth. It is also fundamentally at odds with economic, social and broader public policy goals that seek long term savings and wealth creation to help fund investment, retirement, GDP and employment objectives,” it added.