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Death of protection commissions, new titles and no fee flexibility: What Australia’s Royal Commission has ruled for advisers

What Australia’s Royal Commission has told advisers down under

After 14 months of investigation, the final report from the Australian government’s Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry was tabled in parliament last week.

The 1,000-page document includes 24 recommendations for Australia’s corporate and prudential regulators to tackle misconduct better.

Most referrals have gained wide political support, meaning there is little doubt there will be swift regulatory and legislative action taken.

Head of the Royal Commission Justice Kenneth Hayne warns prosecuting powers will be taken away from both the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority should they continue to fail to weed out illegal practices in advice and banking.

More than 20 criminal and civil prosecutions involving Australia’s big four banks have also been laid out. Commonwealth Bank of Australia and National Australia Bank will stop “advice fees for no service” for their customers, while CBA has also been banned from entering into any new ongoing service arrangements with clients.

While no individuals have been referred for criminal prosecution yet, 22 entities have been identified by the commissioner as having engaged in possible misconduct.

Banking and asset management executives and the regulators are the key focus of reforms, with recommendations for advisers mostly built around the need for higher levels of education.

Advisers in both the UK and Australia are continuing to push for an ultimate goal of being recognised as professionals.

Graduate schemes, apprenticeship programmes, academies and alternative pathways are working their way into the UK market, at the same time as Australia pushes for stringent academic formalisation in a bid to bring trust back.

Final report recommendation highlights

  • Create a new disciplinary system for financial advisers, with all advisers required to be registered. A single disciplinary body would oversee the system.
  • Grandfathered provisions of conflicted remuneration should be repealed as soon as possible.
  • The current cap on commissions for life risk-insurance products should be reduced and ultimately set at zero.
  • All remaining conflicted remuneration exemptions should be referred with a view to banning them outright.
  • All banking licence holders be required to report “serious compliance concerns” about individual financial advisers to ASIC (FCA equivalent regulator) on a quarterly basis.

Source: The Australian Government

However, unlike the UK, in Australia a significant change will be the differentiation between “financial adviser” and “financial planner”, which were previously interchangeable titles. The former will be similar to independent advisers in the UK, with the latter functioning as restricted status.

While licensing has always determined advisers’ exact permissions, Hayne says the differing titles will hopefully remove confusion for consumers.

The creation of a new disciplinary system for advice follows the announcement of a new independent standards body for Australia last year. It will see Australian advisers work under the disciplinary system as well as under two distinct regulators.

Australia appears to be following the UK’s lead from the RDR and Mifid II, with rules mandating absolutely no fees without permission, no ability for individual advisers to set charges outside of what their group mandates, and no commissions on any products, even protection.

Like in the UK, Australia banned most forms of commission in 2013 after its own RDR – the Future of Financial Advice Reforms – but banks and the big wealth businesses successfully fought to maintain legacy contracts to keep their advisers happy with grandfathering commission.

For Australia’s 25,000 advisers, half of whom operate under just 10 vertically integrated conglomerates, the dramatic changes to their industry are only now starting.

Research house Adviser Ratings estimates the stress of the Royal Commission, combined with a further decrease in consumer confidence in the industry and new regulation, will cause around 14,000 exits.

In client wealth, those advisers would represent £511bn in unmanaged assets.

New professional standard requirements

Requirement Start date for current advisers
Hold a bachelors degree or exact equivalent 1 January 2024
Pass the qualifying exam 1 January 2021
Be covered by a compliance scheme 1 January 2020
Comply with new code of ethics 1 January 2020
Comply with CPD requirements 1 January 2019

Source: The Financial Adviser Standards and Ethics Authority

While the FCA has received its fair share of criticism for funds spent on lengthy court cases, UK advisers can at least feel positive in knowing there is some tangible example that bad apples in the industry are being caught.

In handing down Australia’s report, Hayne’s criticism of regulators hinges specifically on their desire to avoid high-profile court cases.

Hayne says: “When misconduct was revealed, it either went unpunished or the consequences did not meet the seriousness of what had been done.

“ASIC rarely went to court to seek public denunciation of and punishment for misconduct. The prudential regulator, APRA, never went to court. Much more often than not, when misconduct was revealed, little happened beyond apology from the entity, a drawn-out remediation programme and protracted negotiation with ASIC of a media release, an infringement notice, or an enforceable undertaking that acknowledged no more than that ASIC had reasonable ‘concerns’ about the entity’s conduct.”

Just a quarter of Australian investors who responded to a survey from financial group Livewire last week say they are happy with the extensive recommendations borne out of the Royal Commission.

Forty-three per cent say they are disappointed the recommendations will not contribute to change in the wider environment.

After 10,000 public submissions, seven rounds of public hearings and 130 witness investigations, it remains to be seen where Australia goes next to try to stem corruption within financial services.



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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Richard Clinton Green 14th February 2019 at 8:30 pm

    People will not pay fees for Life Assurance or similar products and the result will be that a country that is already considered under insured will become even worse!!

    • Agreed – the Netherlands demonstrated that very well – the only thing that saved the Dutch from getting no life insurances at all was the fact that whilst commission on protection was banned, taking protection with a mortgage was obligatory I gather.

    • I also agree with you Richard. It’s bad enough that illustrations show how much the customer has to pay over the term of the contract, in the UK, which I think is probably a disincentive to client’s doing the right thing. What the Aussies are doing is really upside down.

  2. We would all have to join SJP to get commission on pensions and Bonds if they ban it on protection. It’s a hard market independently advising wealth accumulators even being able to offset some fee expectation with protection commission as it is!

  3. I just hope the FCA are not considering this for the UK it would be catastrophic for the sector resulting in thousands of job losses. The RDR resulted in jobs and careers being destroyed for no tangible benefit to the UK.
    What is the benefit in bannng commission on life products it is merely payment for the distribution of goods. is this not how commerce works?
    The banning of commission on retail investments hasn’t worked, just look at the DB pension transfer debacle.
    regulation only works for the honest, the dishonest(no matter how qualified) will always find a way and then dump their misdemeanours on the honest via the FSCS.

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