One of the things which holds back the financial advisory industry is that it's nearly impossible for a client to get redress if they are given bum advice.
Comments made by financial adviser Murray Weatherston at the recent SIFA Conference, and the release of the Banking Ombudsman's report illustrate the issue well.
Weatherston's view is that most people are wasting their time trying to seek redress because the cost of a claim is enormous.
He is well placed to comment, as he has been involved in most of the cases that have come up over the past couple of years.
He tells a story of an investor who spent $100,000 on legal fees looking into taking a case. What's scary is this person didn't pursue the matter because it was too hard and the likelihood of success too low. And they are now an extra $100K out of pocket.
When you hear stories like this the proposal to have an ombudsman scheme for the advisory industry is thrown into stark relief.
It's something we first advocated in ASSET magazine three years ago - and in my view it can't come soon enough.
We already have two ombudsmen schemes running - surely it can't be that hard to get one of them to take on hearings for financial planning?
The group with the biggest advantage in the financial planning industry is the one many independent financial advisers and fund managers see as their big threat - banks.
Bank advisers come under the Banking Ombudsman jurisdiction so their clients do have some form of redress.
Having redress throws up some interesting issues, which you can get a feel for from the ombudsman's recently released annual report and case studies.
First up clients will use the scheme to have a go at advisers if they have lost money, even if the advice was OK.
Secondly often the ombudsman orders the banks to make a payment to the client. In one case study a bank paid back a $3,000 entry fee and in another a bank had to make a payment equivalent to one half of the capital loss suffered by the client.
The question to consider is this: How will advisers not part of big, well-resourced dealer groups deal with these sort of payments if they are forced to make them?
One of the things which holds back the financial advisory industry is that it's nearly impossible for a client to get redress if they are given bum advice.