This week at the banking Royal Commission there have been shocking revelations from the big banks and AMP of an industry rife with appalling adviser-centric behaviour. Tasked with investigating whether the banking and financial services sector engaged in misconduct and any matters should be referred to the state or federal governments for legal proceedings, the Royal Commission has also been asked to review if there are sufficient mechanisms to provide redress to customers. At the end of round two of proceedings it already appears there may be a case for both legal proceedings and compensation with some alarming confessions.
What Have We Found Out So Far?
The Royal Commission has seen the industry air its dirty laundry. We have heard AMP admit to lying to regulators. It has admitted that that it has not informed, or compensated hundreds of customers identified as victims of poor advice from its financial planners, and that it has rewarded planners for sales without taking into consideration the quality of the advice.
The Commonwealth Bank has divulged that some of its financial planners have been charging fees to clients who have died. Whilst Aussie Home Loans has acknowledged that Westpac was the easiest bank to get a loan approved through and that it used forged proof of employment letters. Adding to the list, the NAB disclosed that more than 350 advisers and support staff falsely witnessed client forms that determine who would receive their superannuation entitlements after they died.
These revelations could just be the top of the laundry basket with more hearings scheduled in the coming months. What is already clear however is that trust in the banking and financial services sector has taken a hit.
What Changes Will Likely Occur Because Of The Royal Commission?
For the public it is maddening, though for some not surprising, to hear of so many incidences of misconduct within the sector. The actions of the big four banks and AMP undermines the confidence of Australians in the sector and tarnishes the reputations of not just those who are guilty. To restore faith in the industry, Australians need to see banks and their employees held accountable for their actions.
There are existing regulations and laws in place which are meant to prevent these types of practices occurring and they are monitored by an industry regulator. Former Prime Minister, Tony Abbott, called for the financial regulators to be sacked for not carrying out their role. He told 2GB that “much more vigilant and much less complacent” regulators should be put in their place.
In a letter to Malcolm Turnbull, opposition leader Bill Shorten has asked for a compensation scheme for victims. “Given the shocking evidence that has been revealed so far, it is time the government gave serious consideration to a compensation scheme for the victims of proven wrongdoing,” Shorten wrote in the letter.
The Royal Commission is likely to result in greater transparency in fees and chargers, and a significant cultural shift within the banks. There will likely be a move away from adviser-centric advice (fee focused recommendations) and instead move to a customer-centric approach where the focus is on developing long-term relationships with the client’s best interests at the centre of every conversation. Whatever is done, it will take time for the sector to regain the trust of the Australian public.
Regulations Changes Already Set For Implementation
In 2017, before the announcement of the Royal Commission, the Turnbull Government recognised the need for higher education standards for financial advisers. The previous education requirements, set out in ASIC guidance, allowed some financial advisers to become qualified to provide financial advice to retail consumers after only four days of training. Understandably, these requirements were found to not be sufficient. Reforms addressing this issue will come in to affect from 1 January 2019:
- New financial planners will need a degree, to undertake a professional year and pass an exam.
- All financial planners, both new and existing, will be required to undertake Continuing Professional Development, be subject to a code of ethics and pass an exam (by 1 January 2021).
- Existing financial planners who need to undertake additional study to meet the new education requirements will have until 1 January 2024 to meet the new standard.
What Should You Do If Looking For Financial Advice?
The Royal Commission revelations are coming thick and fast. Whilst it is alarming for many of us, it is important to remember that whilst we are witnessing the dirty laundry being aired, there are plenty of reputable and reliable financial advisers in Australia who put the needs of their clients first and make a positive difference to the lives of their clients.
One tip is to look for a financial adviser who is qualified as a Certified Financial Planner. This qualification is the highest designation in the industry.
The Royal Commission will continue through 2018 with an interim report due in September and a final report due February 2019.
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