The FSC recently welcomed Steven Rice to lead a discussion the recommendations from the Royal Commission Final Report at a member briefing in Melbourne.
What are your overarching views of the recommendations handed down?
The recommendations were not as far-reaching as expected, with the exception of two recommendations relating to mortgage broking – that mortgage brokers be required to act in the best interests of the borrower, and for the borrower rather than the lender, to be required to pay mortgage broking fees.
What is the one thing you think the industry needs to concentrate on doing as a first step to move forward?
The industry should reflect on the importance of the fundamental principles identified by Hayne, especially the requirements to act in the best interests of clients or members, act fairly towards clients, and to not mislead or deceive clients, members, or potential clients and members.
To the extent they are not already, systems and controls must be revisited to properly align with these fundamental principles, in particular those systems and controls dealing with conflicts of interest.
Which recommendation for Financial Advice will see the biggest change eventuate, and what does it mean for the broader finserv industry?
The recommendation for the grandfathered conflicted remuneration exemption to be removed as soon as reasonably practicable will see a significant change for non-aligned dealer groups. More broadly, the recommendations for more prescriptive requirements for ongoing fee arrangements, and for a Government and ASIC review to consider whether the exemptions to the ban on conflicted remuneration remain justified, including in relation to general insurance and consumer credit insurance products and non-monetary benefits, will also have an impact.
In terms of Superannuation, which recommendation do you feel will prove the biggest challenge on the sector and why?
Recommendation 3.3 prohibits superannuation trustees from deducting certain advice fees, unless the requirements around ongoing fee arrangements have been met. In order to implement this recommendation, trustees will have to undergo substantial operational changes.
From your perspective, has the consumer been addressed to a good degree in the recommendations?
Yes. There are many recommended changes which are consumer-focused, such as: those in relation to mortgage broking, the prohibition on hawking superannuation and insurance products, the review into the justification of exceptions to the ban on conflicted remuneration, the increased requirements for charging ongoing advice fees, the requirement for non-independent financial advisers to disclose their non-independence to potential clients, and; the recommendation to make certain provisions in industry codes enforceable by both ASIC and customers.
What would be your one piece of advice for the indsutry during this turbulent time of upheaval?
The sector must prepare for a short implementation time and be ready for uncertainty from the political process.
In terms of the governance environment for finserv operators, how do you see this playing out?
Expect greater scrutiny from boards and a deep focus on culture.