The royal commission’s recommendations on financial advice should be focusing on activities rather than business models to ensure advice remains affordable, according to newly appointed AMP chair David Murray.
In a speech to the American Chamber of Commerce in Australia on 20 June, Mr Murray (who commenced as chair on 22 June) warned that legislation targeted at vertical integration could limit the number of Australians who can access financial advice.
“Should legislation target vertically integrated business models, it risks the removal of the significant sources of support for financial advice that exist today,” he said.
“Substantial consumer benefits can be derived from vertically integrated business models as a result of their scale and access to capital. They have resources that can fund the investments needed support large scale product and advice platforms, can support systematic and comprehensive customer remediation in the event of misconduct, and can develop compliance systems that will evolve with regulation.”
Mr Murray said the royal commission needs to consider this and that its recommendations should instead look specifically at the activities causing problems within the industry than the business models used by industry players.
“The issue for the royal commission will be that increasing number of users of the financial system will not be able to acquire affordable financial advice,” he said.
“To deal with this it would be better to prohibit activities rather than business models. For example, advisers should not receive product or distribution-based fees but can adapt their remuneration to fees for professional advice once only or as a per cent of an investment portfolio where the interest of the adviser and consumer are aligned.”
Further, Mr Murray said it wouldn’t be possible for the royal commission to remove all risk from the industry and needs to factor in the frequency with which problems arise.
“From a public perspective, the apparent extent of misconduct has received widespread coverage partly because of the approach the commission has taken to self-confessions and selected case studies,” he said.
“In dealing with this, the royal commission will have to consider the incidence of mistakes and their severity as no aspect of commerce can be regulated to eliminate all risk.”
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