The FPA has responded to the Royal Commission’s interim report into Misconduct in the Banking, Superannuation and Financial Services industry.
On Friday 28 September, Commissioner Kenneth Hayne handed down the interim report from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. And while the report doesn’t provide any recommendations, it does provide an indication as to the recommendations that are likely to follow in the Royal Commission’s final report.
Commissions
The report was critical of the grandfathering of commissions on superannuation and investment products, as well as criticising current life insurance commission arrangements. The report reasoned that all commission arrangements create conflicts of interest between the interests of the adviser/licensee and the client, and questioned why insurance advice should be permitted to retain this conflict.
The FPA supports the phasing out of grandfathered commissions, provided the following five principles are met:
- The change is in the client’s best interest and no client will be worse off;
- Commission payments are refunded to clients and not retained by the product provider;
- Tax relief is provided for any adverse tax consequences;
- Centrelink benefits are protected from any adverse consequences; and
- Exit fees be banned in line with the Government’s 2018/19 Budget proposal on both super and investment products.
According to FPA CEO Dante De Gori CFP®, the FPA’s position on the grandfathering of commissions is that they should be subject to the FoFA provisions after a three year transition period.
“This would allow those planners with grandfathered commission arrangements to continue to receive those commissions after three years, subject to the FoFA requirements applying to other financial products,” De Gori said. “Those planners not providing ongoing advice would no longer receive grandfathered commissions, with the proviso that product providers rebate unpaid commissions to those clients not receiving advice after the three year transition period.”
However, the FPA’s stance on life insurance commissions is that they not be changed at this point, as life insurance arrangements were recently reviewed and major changes are being implemented through the Life Insurance Framework, with a review scheduled for three years’ time.
Fees for no advice
The report also traversed the charging of fees for no advice, particularly in respect to ongoing arrangements. The FPA does not condone any situation where a client is charged fees for no advice or service that is not in their best interest.
“Fees for no advice is absolutely unacceptable and clearly a breach of the FPA Code of Ethics and Professional Practice,” De Gori said. “The professional obligations that must be upheld by all FPA member practitioners are captured in the eight principles of the FPA Code of Ethics.”
Conflicts of interest
The Royal Commission’s findings also suggested that the approach taken with the FoFA reforms of controlling conflicts of interest, and that of the FSR reforms of disclosing conflicts of interest, may not be working at all. The report questioned whether the licensee/adviser model should be replaced by an individual licensing one.
It’s a position the FPA remains agnostic on: “The FPA does not have a policy position advocating for self-licensing as a preferred licensing model, and maintains its position as being neutral and agnostic regarding the licensee model structure,” De Gori said.
“The role of a licensee is critical to the current regulatory system and each planner must decide which licensee structure and/or business model works best for them and their clients.”
Moving forward
While De Gori conceded there were many findings in the report that were of concern for the profession, he believed the Royal Commission’s final recommendations would help strengthen the professional and ethical standards of planners.
“Financial planning is of national importance for all Australians. We need to work hard to ensure that the bad practises of the past aren’t repeated going forward,” he said.
In October, the FPA surveyed members in relation to the report’s findings, with the feedback helping shape the FPA’s submission in response to the report. The Royal Commission will conduct a further round of hearings before handing down its final report in 2019.
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New Code Monitoring body
In response to FASEA’s Code of Ethics and to help address many of the concerns raised by the Royal Commission, the FPA has lodged an expression of interest with ASIC to establish a Code Monitoring Body.
According to FPA CEO Dante De Gori CFP®, the proposed new Code Monitoring Body will be a separate legal entity to the FPA.
De Gori confirmed that the FPA had been working closely with other key associations to develop an industry solution for code monitoring.
“It is our intention that the compliance scheme will cover both FPA members and non-members,” De Gori said. “The FPA intends to enter into an agreement with the co-operating associations to collaborate on the development of the compliance scheme.”
While the finer details of this new Code Monitoring Body still need to be ironed out, the FPA intends to submit a draft application to ASIC for compliance scheme approval by the end of December 2018.
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