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.
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
- 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
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.