The banking royal commission’s final report will likely be the catalyst for unprecedented change in the financial services industry, an industry executive has said.
KnowITdigital chief executive Wayne Wilson said he believes the questions posed in commissioner Kenneth Hayne’s interim report, released last week, give an indication as to the recommendations that may follow in the final report.
“The interim report’s questions are, at times, very pointed. They provide an insight into the themes and issues on which the royal commission’s final report may focus,” Wilson said.
“The interim report is unequivocal in its condemnation of grandfathering of commissions on superannuation and investment products.
“The overriding theme is that, with multiple large institutions already publicly stating they will no longer allow grandfathered commissions to be charged to clients, any argument against abolishing such arrangements has been debunked.”
He added the report also clearly indicated concerns with life insurance arrangements.
It seems likely the final report will include recommendations to abolish grandfathering or conflicted remuneration arrangements as they relate to super and investment products, he said.
“What action they recommend on commissions related to insurance advice is less obvious. Solutions may involve the division of those who provide financial advice and those who sell life insurance products,” he noted.
“During the royal commission’s hearings, the focus on the charging of fees for no advice, particularly in ongoing arrangements, was evident.
“The interim report has identified multiple reasons as to why such issues were so prevalent, but they all boil down to one root cause – the industry, as a whole, did a poor job of adapting to the Future of Financial Advice (FOFA) reforms.”
He noted the interim report lays the blame for the poor transition to FOFA on both advisers and licensees.
“It indicates that too many advisers and licensees did not work hard enough to implement the FOFA changes,” he said.
“The ramifications of this perceived failure gives rise to a greater issue raised in the report.
“The interim report openly questions whether licensees and adviser models should be replaced by an individual licensing one.”
He said individual licensing is used across a range of professions and would eliminate a range of conflicts of interests from the industry.
“In short, a move to individual licensing would be the largest regulatory reform financial planning has seen,” he said.
“The royal commission is accepting submissions in response to the interim report. The chance for everyone to have their say on what may be the catalyst for unprecedented industry change is now.”