The FPA is continuing in its work to deliver better consumer protections and improve professional and educational standards as highlighted in the final Royal Commission report handed down by Justice Kenneth Hayne.
During the course of the Royal Commission Inquiry into Misconduct in the Banking, Superannuation and Financial Services Industry, many findings have undermined consumer trust in our financial institutions. From banks to insurance, mortgage brokers to financial planners, we’ve seen examples of a sales culture that puts profits before customer interests.
As a professional body with 14,000+ members, the Financial Planning Association has been advocating for more than 20 years for the highest standards of education, professional and ethical conduct in our profession. Transparent, client-directed fees, a profession-wide code of ethics, and putting the client-first principle at the centre of financial planning services are goals we’ve been working towards for some time. These are the service standards and codes of conduct we believe Australian consumers deserve from any business handling their money and financial security.
“The vast majority of financial planners are highly qualified, ethical and professional and empower their clients to achieve their money and life goals,” says FPA CEO Dante De Gori. “However, it is without a doubt that the bad behaviour of some individuals in the past has been inexcusable and this needs to stop.”
The 76 recommendations from the final Royal Commission report introduce important changes to the financial services profession that will safeguard consumer interests and deliver better outcomes for individual clients. The FPA welcome the Royal Commission recommendations that relate to financial advice services. These measures offer our organisation and members an opportunity to move forward with important reforms to financial planning.
“We believe change in the financial planning profession will ultimately result in better outcomes for all Australians,” says Dante. “It is our objective to help create the environment that will enable all Australians to achieve a more secure financial future. The FPA is committed to working cooperatively with the government to support the growth of our profession for the benefit of consumers.”
Key recommendations for financial advice
1. No more trailing commissions
Trailing commissions were discontinued under Future of Financial Advice (FoFA) reforms introduced in 2013. This means financial planners can no longer receive ongoing fee payments from providers for financial products their clients take up. However, this legislation did not go as far as stopping fee payments for products that had already been sold – known as grandfathered commissions. The Royal Commission report now recommends removing all grandfathered commissions on products sold before July 2013 when FoFA was introduced.
2. Ongoing advice fees to be annually reviewed
Where there’s an ongoing fee arrangement between a planner and their client, these must now be reviewed and renewed by the client on an annual basis.
3. Reducing commissions on life insurance
Through a number of recommendations, Justice Hayne’s report suggests insurance products should be subject to the same regulatory requirements as other financial services. This includes further limiting, and potentially banning, commissions on life insurance product sales, following a review to be completed in 2021.
4. A new disciplinary system for financial planners
The report recommends a central register for all financial planners and a single disciplinary body to oversee issues of misconduct and hand out sanctions. As well as tightening up the processes for handling misconduct, Justice Hayne hopes this new body will “assist in impressing upon financial planners that they occupy a position of trust.”
5. Quarterly reporting of misconduct concerns
All businesses providing financial services must hold an Australian Financial Services Licence (AFSL). Some financial planners hold their own licence, others are representatives of a licence holder, such as a bank or other financial institution. The Royal Commission report calls for AFSL licence holders to report to ASIC any concerns about the conduct of individual planners on a quarterly basis.
A renewed commitment to clients’ best interests
It’s thanks to changes like these – plus new profession-wide education standards for all financial planners – that clients can trust their CERTIFIED FINANCIAL PLANNER® professional to always be working in their best interests. With these reforms in place, we look forward to a brighter financial future for everyday Australians who can continue expecting their financial planner to be qualified and accountable, as well as ethical in their conduct.
“People want to know who they can trust with their money,” says Dante. “They deserve trusted and transparent financial advice that is unequivocally in their best interests as the client.”
Looking for tips on getting financial advice that’s right for you? Read our checklist of what to look for in a financial planner.
