The final report recommended the law should be amended to require that a financial adviser who would contravene section 923A of the Corporations Act by assuming or using any of the restricted words or expressions identified in section 923A(5) (including ‘independent’, ‘impartial’ and ‘unbiased’) must, before providing personal advice to a retail client, give to the client a written statement (in or to the effect of a form to be prescribed) explaining simply and concisely why the adviser is not independent, impartial and unbiased.
In response, the government agreed with the recommendation, requiring advisers to “provide a written statement to a retail client explaining why the adviser is not independent, impartial and unbiased before providing personal advice, unless the adviser is allowed to use those terms under section 923A of the Corporations Act 2001.”
Mr Hayne noted that, by itself, simple disclosure of conflicts of interest is insufficient as a means of managing them.
“The whole regime of disclosure presupposes that what is given to a consumer in writing will be read, and if read, will be understood,” he said.
“Often, that presupposition is wrong. And given the length and complexity of FSGs (financial services guides) and PDSs (product disclosure statements) that is unsurprising. Further, as Professor [Sunita] Sah explains in her research paper, disclosure of conflicting interests may fail as ‘a discounting cue for biased advice, it may even make matters worse’.”
Mr Hayne noted that, currently, advisers will contravene section 923A(1) of the Corporations Act if they use words such as ‘independent’, ‘impartial’ or ‘unbiased’ in relation to the financial services he or she provides unless all of the following are satisfied:
- The financial adviser does not receive:
- commissions (other than commissions rebated in full to the client);
- any form of remuneration calculated on the basis of the volume of business placed by the adviser with a product issuer; or
- any other gift or benefit from a product issuer that may reasonably be expected to influence the adviser.
- Neither the financial adviser’s employer, nor any person on behalf of whom the adviser provides financial services, receives any of those benefits;
- The financial adviser operates free from direct or indirect restrictions relating to the financial products in respect of which he or she provides financial services; and
- The financial adviser operates without any conflicts of interest that might:
- arise from his or her associations or relationships with issuers of financial products; and
- be reasonably expected to influence the adviser in carrying on a financial services business or providing financial services.
Mr Hayne noted that, at present, there is no requirement for a financial adviser who doesn’t satisfy those requirements to explain to a retail client that they are not independent.
He said a client may be able to infer that fact from some of the matters disclosed in an FSG. However, in Mr Hayne’s view, this is not sufficient.
“A financial adviser who does not meet the requirements set out above and who provides personal advice to a retail client should be required to bring that fact to the client’s attention, and to explain, prominently, clearly and concisely, why that is so,” Mr Hayne said.
“I consider that disclosure of that kind is likely to be more readily understood by, and therefore more useful to, a client than the existing requirement merely to disclose, in general terms, certain information about the providing entity.”
Due to grandfathered commissions my firm cannot be called independent. Removing all grandfathered commission and suddenly we will be. I am guessing there are a few other other firms out there in a similar position.
Very interesting development regarding mortgage brokers. now the RBA governor has thrown his weight behind it. saying,
“[i]Dr Lowe said he strongly agreed that mortgage brokers should operate under a best interest duty, another recommendation of the royal commission, and given they “essentially are providers of financial advice” they should operate under the same regulatory regime
[/i]”
The productivity commission has already recommended that ASIC exempt financial planners from the requirements of an ACL, it might even be better to get rid of the ACL altogether and make credit a financial product so only licensed financial planners are able to provide credit advice.
it would wipe out virtually all of the mortgage brokers though.
Source : AFR
https://www.afr.com/business/banking-and-finance/right-to-be-cautious-philip-lowe-matt-comyn-back-a-role-for-mortgage-brokers-20190206-h1axjf
Who benefits? The answer is simple. Just look at what happened to the banks share price, post-RC.
for an eminent legal person – his report is a total failure – didn’t understand the subject matter – didn’t display a particularly good understanding of the law as it currently stands – as a member of the unwashed public the guy is a failure – as are his trussed up impertinent elfs. really – taking a shot at a very senior – like top of his tree economist – with a immature – but perfectly coifed woman – for f**k sake can we have some grown ups in the bloody sand Pit – the RC’s approach to Dr Henry was a perfect example of how the legal profession is out of its depth. Embarrassing really
Independence is an absolute load of rubbish. I am not aligned to any product I sell but fail independence as I accept commissions from insurance companies becuase I recognise that my clients can’t afford to pay a fee for this even with a 30% reduced commission and that they won’t be able to afford to pay a fee at claims time. I can disclose that if they want but it is pretty easily explained and really just a waste of time and further adding to the compliance red tape that makes SOAs confusing for clients.
When they ban all grandfather commission including on insurance you will be independent like me.
hey guys there is some good news. at least we don’t have to send out opt in every two years. we’ll have to do it yearly. YAY!
Someone, quick call the looney bin…we’ve found their escapee…LOL!
Name any other instance where you are required to provide a written explanation of why you are not what you aren’t even claiming to be.
So the next time I go and see my GP does he have to give me a written simple explanation of why he is not claiming to be a Neurosurgeon?
Once again we have a major review that promises to fix the big issues yet hits the simple low hanging fruit that cant fight back like the Banks. If Hayne had stuck to looking at the big issues we might have got something worthwhile.
it’s just insane. he says disclosure is only effective if it is read, then asks us to give more disclosure which isn’t going to be read.
i’ll have to explain what section 923A(5) means and then charge the client for that time.
we won’t be required to if we all pass the exam, have post grad qualifications and charge a fee for service.
until that happens, they won’t leave us alone, they will keep using us as scapegoats
i wonder who the next review is going to blame when most of the planners and brokers are gone, the economy has imploded because the housing bubble has burst and then the only remaining planners are all post grad qualified and have passed an exam
to those people, i’d be thinking about finding someone else to blame
Remember the Banks collectively have LOTS of Power – extra interest rates to cover additional compliance cost imposed as a result of the recommendations, they will pass on costs to there customers without doubt. Agree with you Steve, Home Loans just became much harder for Australians.
So Hayne thinks the current disclosure environment is so excessive, he needs to have an additional disclosure document to highlight the bit he thinks is important?? What happens when some other lobby group gets in some politician’s ear to say their favourite bit of disclosure needs to be in a separate document to stand out from all the other documents, which is now even more difficult for consumers to wade through because of the extra Hayne document?
When does it end? It ends when someone with common sense starts reducing the excessive disclosure to an amount that consumers can digest. Unfortunately Hayne is not that person.
Whilst I can meet the definition of ” independent” on a personal level, I can’t call myself ” independent” because my licensee does not. Going alone and obtaining my own license isn’t an option for me due to costs/ risks. Nevertheless, I believe the Commissioner got this right.
Well said, Ian – and you’re right about leaving your licensee. Do it. I did 12 years ago and never looked back. It’s not that expensive and the freedom is worth every penny. The RC was needed and has made only fairly soft recommendations and yet this lot are bleating on already – unbelievable. Makes you want to pretend you aren’t associated with any of them, but especially those who are so gutless they remain “anonymous”. In in Perth and you can google me and email/call if ever you want a chat about making the move.
This is an absolute disgrace.
When the vast majority of the identified issues have been caused by large institutions, we are all penalised and tarred with the same brush in order to “fix” the problem.
Why are we all being hammered and our businesses destroyed because of others ?
This will sound ridiculous, but it is simply and grossly unfair and unacceptable.
I am always amused to read what some so called “expert” decides what is and isn’t “unbiased” I have always held my clients needs as paramount. just because someone charges an arm and a leg for advice , that doesn’t make the advice any better
Wait until we’re so Independent we dont have any clients. Surely Independence at its core means without changing your underlying values and motivations . This is not monetarily based !
Good luck getting a home loan, insurance or advice now. You can thank Bill Shorten & the BRC for that.
Will get plenty of advice on super through Bills Industry funds though.
And no vertically integrated bank involved, no-one getting secret commissions or funding and their call centre staff are of course all FASEA compliant with their Masters in financial planning and their fresh diploma in Ethics….what could possibly go wrong, go wrong, go wrong, go….
WTF
How many advisers satisfy the definition of independent now…. zero!
And Vertically Owned Adviser by the Banks, Industry Funds, etc will go on providing Conflicted Advice, that requires insane amounts of over compliance to try to minimise the conflicts and DOESNT WORK!!
The Hayne plane completely missed tackling the biggest Train Wreck of conflicts that is Vertically Owned Advisers.
I’m a vertically “owned” adviser and can guarantee that my advice most likely has less conflicts than yours. Don’t label all advisers employed through a vertically aligned group as conflicted.
Hilarious comment. Living in a cult I’m also free to select any religion….yes free..I”m not brainwashed….. Yes I used to think like that until I realised the licensee was restricting communications and articifically creating a false advantage.
I tell clients that I own & operate my own business, that our AFSL is not owned or aligned to any bank, product provider or insurer but I cant say that I’m independent because we believe that the best options for clients who are ordinary australians (and not HNW individuals or familes) is to take comms on insurance. All the insurers pay the same, and the only time we looked at comm rates previously was to put them in the SOA. We based our recommendations on quality of the product & the premiums charged. We also receive comms from clients who are in grandfathered pension products where to switch to a fee for service product would actually disadvantage the client as the treatment of their allocated pension would change with Centrelink, reducing their Age Pension.
Yep exactly the same for us Jimmy. And as you would know more and more clients are seeking Non Institutionally owned Advisers.
With zero help from the Govt or regulators, the smarter clients are working it out.
But the most restrictive definition of Independent Adviser in the World doesn’t help us at all. Big Bank power lives on
Do you tell insurance clients that the more cover you recommend, the more you will get paid?
The simple answer to that question is YES.
Do you tell people the more regulation that gets made the more the Lawyers at ASIC make? Point of fact is that ASIC has made a lot of additional jobs with the $70M for AMP and the 4 Banks inserting staff and about $130M extra funding. Not bad and no conflict? Tell me, how does ASIC regulate QANTAS Super when the Commissioners all receive FREE access to the QANTAS Club?
The more courses recommended, the more one gets paid? (Tip hat, FASEA)
Spot on, this 100% mirrors my business, we self licensed around 2 years ago because we didn’t want the perception that we owned or operated and products. You and I should merge!
I spoke with a pure fee for service adviser about 18 months ago, he worked inside an accounting firm and kept a time sheet on how much it cost his business to implement an insurance case from start to finish, based on the hours of everyone in the office handling it – it came in at $7k. Absurd to expect a client to shell out $5k on top of risk premiums in the first year.
Jimmy….. the pension commission will be rebated to the client.If you are providing a valuable service commensurate with the size of the commission then I am sure the client will agree to have it restated as an adviser service fee, which you will then need to agree to each year. Removing grandfathered commissions and rebating them provides the consumer with a fairer and more transparent product whilst still providing the adviser the ability to continue to charge that client for the service if and where it is being provided.
The losers will only be advisers sitting on commission books who are not providing a service that justifies their commission that now must be transitioned to a more transparent fee.
Michael, I understand your argument but tell me why should the same argument not be applied to Inter Fund Advice?
Yep and maybe one dream land day insurance companies will provide a competitive totally commission free product. Until then it doesn’t work properly.
They are going to kill the non-bank advice industry – see the UFAA
Will industry funds get the same laws.. from what I see they have integrated models and not sure how they work with bid
Simple answer…they don’t.
Yet the vertically integrated, completely conflicted industry funds will be allowed to promote themselves are independent. How utterly absurd and insulting to the real independent financial advisers, who work their butts off in small practices around the country.
Ben, I agree with you – what else can one say. You could not make this stuff up.
Really? You think that financial advisers that work for the industry super funds will be able to promote themselves as independent? That’s not how I read it.
They’ll have to do what most advisers right now might have to do going forward, and explain why they aren’t independent. They won’t take the risk of not doing that. One shadow shop is all it takes to bring it all down.
20,000 volunteers from the Financial services industry just put their hands up to volunteer on the ISA shadow shopping exercise.
The licensed financial advisers who work for union funds will be subject to the same laws as other licensed financial advisers. But let’s not forget that most union fund spruiking is done via call centre staff and “workplace representatives” who aren’t licensed at all. They can tell whatever lies they like.
They have never been investigated and ASIC also stated they wouldn’t expect to find any issues so no chance of that.
And wasnt to leaders of 2 industry funds in court in july 18 on-wards on fraud? The RC were not interested?
I’ve seen the adverts. If you are in an industry fund you end up with more at the end. I’m sure it must be true 🙂
No comment (required).
I know you think we’re all the devil, but I literally can not afford to pay the fee to become independent yet charge fixed fees, take 0 comms, have no asset based fees or grandfathered comms, and the only reason I can’t call myself independent is because I have to be an AR through a licensee where other AR’s in other businesses take comms.
With this, I may as well just take all comms, asset based fees, and work with a property developer already, as we’re all seen as being the same
To become independent, you have to be open to change. Helps to not blame others.
I don’t think you’re the devil. I think you, like many other advisers, you might be feeling lost.
I’m not lost, I’m just not wealthy enough to start my own AFSL. When I approached an independent AFSL, they scoffed at the idea. How can we do what ASIC wants us to do if they make it too financially burdensome to do so?
I have my own AFSL and I’m a one man band and having done so for the past 12 I believe it’s the only way to go. Why stick with something you believe is wrong? That it itself is a compromise way too far and certainly not one you’d want to tell someone you’re advising. It costs about $15kpa more to have your own AFSL and that’s a small price to pay for freedom.
exit the space and get into car sales or real estate sales.
I also have no comment to Matt’s no comment