While the royal commission did not recommend dismantling vertically integrated wealth management models, the CFA Institute says it should remain under “active consideration” as the financial advice industry adjusts to new policy reforms.
CFA Societies Australia and the CFA Institute today released policy recommendations in response to the royal commission in a report, titled Professionalising Financial Advice, which was developed following extensive consultation with CFA Societies Australia Advocacy Council and other investment management industry leaders in collaboration with the global CFA Institute advocacy team.
Lisa Carroll, CEO, CFA Societies Australia said the association strongly believes that customers should be made aware of the ownership structure or exclusive product relationships that advisers may have with other organisations.
"At present, we think that a ban on vertical integration is not warranted, however, it should remain under active consideration based on an assessment of the progress made,” she said.
In the report, CFA Societies Australia and CFA Institute call for the set-up of an independent industry body that individually registers and monitors its professionals to ensure ongoing and long-term professionalism of the financial advice industry as a recognised profession.
It also proposes a series of policy reforms and structural changes that should run simultaneously to improve outcomes for customers accessing financial advice and rebuild trust in the industry.
Stephen Dunne, chair of CFA Societies Australia Advocacy Council, highlighted the significant opportunity to professionalise the industry in response to the findings of the banking royal commission.
“The interests of firms were often put ahead of the interests of customers, leading to compromised outcomes for customers which severely diminished confidence in the investment industry and caused loss of trust in its professionals,” he said.
“We believe the future of the industry depends on policy reforms aimed at professionalising the industry regardless of which party is in government post 18 May.
“All industry stakeholders including the government and regulators must work closely to take decisive, visible and impactful actions that address these issues and rebuild investors’ trust.”
The policy recommendations report highlights that a genuine long-lasting impact cannot be achieved with a single solution. Rather, a series of policy reforms and changes should run simultaneously to improve outcomes for customers including strengthening best interests duty and ensuring appropriate consequences; outlawing conflicted remuneration practices; ensuring independence of advice; and enhancing the professionalisation of the financial advice industry.
“We strongly recommend that the grandfathering of commissions be outlawed within next 12 months. This allows firms to take a short sunset period to adjust, and customers of financial advice firms to see actual changes taking place. Further transparency and disclosure need to be offered to customers around all fees and costs that they may incur including adviser remuneration and platform fees,” Mr Dunne said.
“For policy to deliver positive outcomes, the remuneration of both advisers and senior executives should be aligned to the interests of customers. This requires banning ‘product pushing’ and rewarding ethical practices and decision making.”
CFA Societies Australia and CFA Institute also hold the view that the duty to act in clients’ best interests should be an imperative commitment made by all advisers.
“We believe policy needs to establish strong deterring consequences for those who act against the interests of customers, including suspension or banning from the industry. In the long term, the industry should aspire to a principles-based approach to managing adviser-customer relationships, and the adoption of the fiduciary duty standard should be considered,” Mr Dunne said.
A former AMP financial adviser has called on advisers in the buyer of last resort class action against AMP to “ensure ...
The Financial Services and Credit Panel has made its latest ruling over a case involving an incorrect statement of ...
The head of the FSC says the corporate regulator is sending mixed messages to the financial advice and superannuation ...
Never miss the stories that impact the industry.
Get the latest news! Subscribe to the ifa bulletin