Royal Commission Report

8/02/2019

Royal Commissioner Kenneth Hayne’s final report was released earlier this week amongst much public anticipation and with some likely angst from within the Financial Services industry.

In Brief

The findings are broad across sectors within the Financial Services industry and will see significant changes to practices and the way the industry is regulated. Given the political climate and impending federal election, major political parties have indicated that they will support the majority of the recommendations. We suspect that once they have properly considered the economic impact of some of the recommendations, they may back pedal a little. 

The general tenor of the report suggests clients’ interests were being subordinated to the profit motive of service/product providers and to the financial benefits to their employees. In addition, the Commissioner is harsh in his assessment of the regulators and how they have not properly held industry to account.

The mortgage broking and personal insurance industries are likely the most affected with commissions on product sales recommended to be abolished as soon as practicable.

In wealth management and financial advice, in anticipation of the Commission’s findings, a number of the bigger financial institutions have been changing their business models.  Some even have plans to divest their wealth management divisions recognising that it is not economic for them to meet service expectations.

The investment markets reacted positively to the findings suggesting the banks have escaped unscathed, however their share prices had already dropped significantly over the course of the commission hearings.  The evidence given during the hearings and in submissions had painted a negative picture of their actions and culture in relation to client dealings.

Recommendations - Financial Advice

The main recommendations applicable to the Financial Advice sector (and so Redwood) include:

  • Any ongoing fee arrangements with clients must be reviewed annually by the client.
  • The advice firm must record in writing each year the services that the client will be entitled to receive and the total of the fees that are to be charged.
  • Advice firms need to declare in writing to clients why the adviser is not independent, impartial and unbiased before providing any advice.
  • Advice firms must complete reference checking on new advisers and must report serious compliance concerns about advisers to ASIC.
  • Commissions linked to financial products (grandfathered since 2013) will cease.
  • Advice firms should as often as reasonably possible take steps to assess the entity’s culture and governance and if problems are identified deal with them immediately.

How does this affect Redwood and our Client Service Offering?

Here at Redwood we welcome the recommendations and pride ourselves on a culture focused on service to clients and working singly towards helping them achieve their wealth and personal goals. This won’t change and the recommendations only reinforce that we are on the right track in how we work with our clients.

We recently communicated with you about the work already underway at Redwood to review our services and better define them.  We look forward to discussing this with you in the near term.

We welcome your feedback on the Royal Commission and any questions you may have.   

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