Advisers face big shake-up
Ten of the 76 recommendations made by Commissioner Kenneth Hayne in his final report on the royal commission into misconduct in the banking, superannuation and financial services industry, related to financial advice. “For some time now, a financial adviser has been something between a salesperson and a professional adviser,” says the report. “The industry has moved from scandal to scandal, causing financial harm to clients, and damaging public confidence in the value of financial advice. This cannot continue.”
Some of the key recommendations include:
• All ongoing fee arrangements must be renewed annually by the client and the planner must provide in writing details of what the client will be entitled to receive and the total fees that are to be charged.
• Repealing “grandfathered” commissions for conflicted remuneration.
• In 2022 there should be a review of the effectiveness of measures to improve the quality of advice.
• The cap on life insurance commissions should be reduced to zero.
• A new disciplinary system should be set up for financial advisers.
Rather surprisingly, vertical integration was left untouched, with Hayne stating that enforced separation of product and advice would be both costly and disruptive and he “cannot say that the benefits of requiring separation would outweigh the costs”.
A number of larger financial institutions have already decided to leave the financial advice business and Koda Capital’s Paul Heath has been quoted as saying that the new regulatory environment means it will be challenging for vertically integrated firms to manage conflicts of interest and that vertical integration is going to face significant regulatory headwind.