2016: Year in Review

Members of the financial advice industry are heading into 2017 hand-in-hand. ifa looks at the major events that have led to this unification over the past 12 months.

To call this year an eventful one would be an understatement.

From life insurance scandals to controversial legislation, the financial advice sector has watched a string of squabbles play out through much of 2016. But as this somewhat dramatic year draws to a close, it may now be safe to say that many of this year’s issues will not creep into 2017.

That is because many in the industry have joined together to make some serious changes. For example, the nation’s major banks rallied together in April to address consumer concerns by taking part in a range of new measures announced by the Australian Bankers’ Association (ABA).

Life insurers this year also pledged to be better, together welcoming the Financial Services Council’s (FSC) new Code of Practice that is intended to build consumer trust in the industry.

Even risk advisers – who had fought yearlong against the proposed Life Insurance Framework (LIF) reforms – chose in sync at an AFA conference to accept and move forward with the inevitable changes.


Perhaps there is nothing, however, that demonstrates this theme of coming together better than the ever-growing IFA movement. We have watched throughout the year as more and more aligned advisers either switch to non-aligned dealer groups or gain their own licenses.

The ifa Excellence Awards in August attracted 400 industry professionals – the greatest number of attendees since the event’s inception in 2014. Santi Burridge, founder and chief executive of Implemented Portfolios, recently told ifa he expects 2017 to be “the year of the independents”.

Even ASIC has expressed its optimism for Australia’s advice industry. “There are plenty of green shoots around better cultural indicators emerging in the financial advice space,” said ASIC deputy chair Peter Kell.

“I know we've been through some challenging years, and we've still got some issues to deal with, but you've got on one hand some of the key law reforms, such as putting the best interests of the client first, through to initiatives the industry itself is taking. “We're not going to finish the journey in a matter of weeks, but I'm very confident that we're on a positive journey here.”

So without further ado, here is the ifa team’s round-up of a year of progression.

A declaration of independence

The IFA sector continues to grow steadily, thanks to bank-aligned adviser scandals and moves by financial institutions to close down their advice arms.

Last year, Suncorp announced it was transitioning out of its employed, aligned adviser networks, Guardian Advice and Suncorp Financial Planning, in order to “simplify its distribution model”. By July, the majority of those former Guardian-aligned advisers had joined a range of non-aligned dealer groups.

Out of 87 former Guardian advisers, who left the dealer group following the November announcement, 77 moved on to non-aligned licensees, according to ASIC. But there are also those moving across simply to gain more control of their businesses.

In July, ifa reported that Peita Diamantidis – co-founder of Caboodle Financial Services and wellknown industry thought-leader – gained her own AFSL. Ms Diamantidis, who was previously licensed with Suncorp’s Guardian Advice, said she decided to become self-licensed in order to "lead the charge in terms of providing innovative client offers".

A month later, JBS Financial Strategists’ founder and chief executive Jenny Brown announced she had parted ways with Professional Investment Services to also become self-licensed.

And this shift is expected to continue. According to the Momentum Intelligence Dealer Group of Choice Survey 2016, non-aligned licensees are among the top picks for advisers looking for a new home, with poor culture cited as the main reason for moving on.

Rod Bristow, CEO and managing director of Infocus Wealth Management, says this is because more banks are expected to exit the advice space.

In September, CBA subsidiary Bankwest confirmed it was in the process of closing down its salaried advice business.

In response to the news, Mr Bristow said, “There are many, many fantastic advisers around the country giving great advice to their clients who, through no fault of their own, will be forced to restructure their businesses as the institutions unilaterally make decisions that impact their livelihoods.

“We believe the clock is ticking on some of the larger AFSLs currently within the institutional ownership. It’s only a matter of time before these are either sold or closed down.”

Days in the life insurance industry

In March, a bombshell was dropped on the Australian life insurance industry when a joint ABC/Fairfax Media investigation uncovered errors in the handling of claims, particularly relating to heart attacks, at CBA’s insurance arm CommInsure.

CBA chief executive Ian Narev conceded that the bank had failed to "meet its responsibility" when examining its clients' life insurance claims. "In these cases we focused too much on process rather than people. By their nature, life insurance policies can be complex,” Mr Narev said in a statement.

“Claims processes involve the review and assessment of detailed documentation. Whilst thoroughness is important for the integrity of the system, this must be balanced by customer need and dignity."

Days after the scandal broke, CommInsure made a raft of changes to its insurance offering, including upgrading its "heart attack" and "severe rheumatoid arthritis" definitions in its Trauma product. It also formed an Independent Review Panel to handle complex claims declined by CommInsure’s claims committee.

ASIC's Mr Kell told a Senate hearing in April it also began its own investigation into CommInsure in close consultation with the Australian Prudential Regulation Authority (APRA). Mr Kell told the Senate Economics References Committee that he expects the probe to continue well into next year.

In addition, ASIC announced that same month that it would conduct an industry-wide investigation into claims handling and determine whether the scandal was symptomatic of a wider systemic issue across the life insurance sector.

The regulator released the results of that investigation in October, saying it found “a clear need for public reporting on life insurance claims outcomes at an industry and individual insurer level”.

However, ASIC did not name the insurers that correlated with claims figures in the report. But one insurer, BT, owned up to having a total and permanent disability claims denial rate of 37 per cent.

BT Financial Group chief executive Brad Cooper said the figures needed to be “treated with caution”, and that the industry needs to improve the consistency of data so that consumers can make valid comparisons of products.

In an effort to improve claims handling standards, ASIC and APRA established a new public reporting requirement for life insurance industry claims data and claims outcomes.

“To improve public trust, there is a clear need for better quality, more transparent and more consistent data on life insurance claims,” ASIC said.

“ASIC and APRA will work with insurers and other stakeholders over 2017 to establish a consistent public reporting regime for claims data and claims outcomes, including claims handling timeframes and dispute levels across all policy types. Data will be made available on an industry and individual insurer basis.”

The long, winding road to reform

Despite the dissolving of Parliament followed by a double dissolution federal election in the middle of the year, progress continued to be made on legislative reforms to the advice industry.

Following the re-election of the Turnbull government in July after an extended counting process, Kelly O’Dwyer was reinstalled as the Minister for Revenue and Financial Services.

Ms O’Dwyer then announced revisions to the government’s proposed LIF bill in October, including the removal of a transition arrangement and the potential direct carve-out. The revised legislation was introduced into Parliament that same month.

“The revised regulations enable the reforms to apply to both advised and direct sales of life risk insurance products. This maintains the integrity of the reforms by ensuring they apply equally regardless of distribution channel,” Ms O’Dwyer said in a statement.

The proposed LIF was a major discussion topic throughout the year and was the source of many arguments on the ifa website.

A band of advisers and dealer group heads – known as the Life Insurance Customer Group (LICG) – made their resistance to LIF clear, even pushing the AFA to call an extraordinary general meeting and vote on a resolution at their annual conference in October.

The resolution was ultimately rejected, with 74 per cent of AFA members voting against the resolution that it should revise its stance on LIF. There was also continued progress on the reforming of adviser education standards as part of a greater push towards professionalism.

Ms O’Dwyer announced in April that the new professional standards regime will commence on 1 January 2019, and that existing advisers will have until 1 January 2021 to pass the new exam and until 1 January 2024 to reach degree equivalent status.

As at early November, Ms O’Dwyer had yet to introduce the bill. According to a statement, the reforms will include the establishment of an independent standards body to oversee compulsory education requirements for both new and existing financial advisers, along with supervision requirements for new advisers and a code of ethics for the industry.

The education reforms have been met with widespread support across the financial services industry, however advisers showed concern that the funding of the standards body by the big four banks and AMP could create a potential conflict of interest.

Responding to the concerns, Ms O’Dwyer said, “The benefit of obtaining initial funding from the large banks and AMP is that the body can start work on lifting professional standards without having to wait for the establishment of an ongoing funding model.”

AFA chief executive Brad Fox also soothed adviser concerns, saying he will seek "absolute certainty that this will not give those institutions an unfair advantage in contributing to the standards or the directors that will be appointed to the professional standards body”.

Banking on it

As the year draws to a close, banks can tick customer scandals, compensation pay-outs, scrutiny from ASIC and the Federal government, and industry reviews off their 2016 calendars.

Following the Australian Labor Party’s threat of a bank royal commission, the ABA launched a package of initiatives to address consumer concerns in April.

The ABA’s six-point plan, designed to review bank product sales commissions, customer support within banks, whistleblower policies and bank employees guilty of misconduct, is being reported on by independent governance expert Ian McPhee AO PSM via quarterly reports.

In his second report, released in October, Mr McPhee said the banks had taken some basic steps towards addressing product-based remuneration and incentives, and progress had been made in relation to client remediation programs. Mr McPhee also confirmed that the ASIC user-pays model had been delayed.

In early October, the bosses at CBA, NAB, ANZ and Westpac each took turns answering grilling questions from the House of Representatives standing committee on economics.

The banks were quizzed on the effect of domestic and international financial market developments on Australia, developments in prudential regulation, the costs of funds, impacts on margins and the basis for bank pricing decisions, as well as how banks were enhancing consumer protections.

But the heat did not end there.

In late October, ASIC announced it had found thousands of instances at major banks where customers were being charged a fee for ongoing financial advice they never received.

According to the regulator’s Financial advice: Fees for no service report, AMP, ANZ, CBA, NAB and Westpac will be expected to collectively repay $178 million to those victims. ASIC’s Mr Kell said it is possible that the compensation total will rise.

“Several of the institutions are still halfway through some of their reviews and some of their checks that they’re undergoing,” Mr Kell said. The banks have since apologised for the overcharges and pledged to compensate affected customers.

Moving away from products

Beyond the scrutiny, this year has also seen many major financial institutions promote a shift away from product based advice models to a goals-focused and holistic advice approach. In July, AMP announced the launch of its online Goal Explorer tool aimed at helping customers identify and prioritise financial goals.

The firm also called on the industry to focus on goals based advice as a solution to financially stressed employees in the workforce. In October, AMP announced it was rolling out a new financial advice business with all of its iPac-aligned advisers set to cross over to the new model.

AMP group executive advice and banking Rob Caprioli said, “When we think of how rapidly society is changing … and the changing expectations that customers have, we see the need for goals-based advice becoming increasingly important."

This comes not long after IOOF announced it was launching its own adviser training company aimed at helping advisers adopt a goals-based client engagement model.

It is not just the big end of town making the shift. In August, a group of advisers parted ways with NOW Financial Groupaligned firm Aspire Wealth to create a new brand - Avanti Advisers.

Director at Avanti Amie Wild said she and the other advisers wanted “to take on a fresh approach to advice, and by rebranding we are able to focus on offering holistic financial advice that focuses on who our clients are, what’s important to them, what their values are and what they want out of life, as opposed to set-and-forget, productbased advice”.

Goals-based advice has been used as an avenue for advisers to engage with the millennial market throughout 2016.

At least that is what FinCoach is doing. The new goals-based fintech launched its advice tool in Australia this July.

The tool is designed to help advisers target the low-to-mid wealth Australian market.

Founder of FinCoach Shaun Frost said, “Not enough is being done when it comes to providing quality financial advice to everyday Australians.”

Many advisers, however, have questioned the recent hype around goals-based advice, arguing that smaller advice firms have been relying on this approach to drive business for years.

Roskow Independent Advisory's Matthew Ross told ifa that while this isn’t a new movement, it is encouraging to see bigger companies swap approaches.


2016: Year in Review
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