Banking Royal Commission 2018

Post the Global Financial Crisis and out of the cries from appalling client experiences, a small group of client focused advisers and in the later days powerful vested interest groups, they took their fight to the political parties demanding changes by the large institutions and their behaviors within their financial planning divisions and investment products. 

The result? A major win for their cause and "keeping the bastards honest".

Many changes and new regulation have already been adopted by the large institutions and throughout the wider financial advice industry however, we should all anticipate more changes to come.

So as we enter 2018 and look forward to the Royal Commission into Banking and Financial Services ahead of us and their interim report due by the end of September 2018, lets take pause to see how far the industry and regulation of the Financial Service s Industry has already come.

Opt in" agreements every second year.

If you are paying ongoing fees to your financial adviser you will be required to sign a written consent agreement every two years for you to continue receiving advice and services from your adviser.

The Coalition initially scrapped this "opt in" requirement based on reducing additional red tape and costs to advisory service businesses. However industry & not for profit argued opt in was essential to ensure clients were receiving ongoing contact and advice from their advisers licensees. After much back and forth debate and horror stories from clients and the exposing of flawed internal process with the big banks the original FoFA opt-in recommendations were reinstated.

Best Interest

Accepting the advice from your adviser will require that your adviser not only ensures their recommendations have considered your needs, circumstances, investing experience and investment personality. Your adviser will also be required to document how this advice is reasonable to your situation.

Conflicted Remuneration

Commissions to licensed advisers have already been banned and this legislation will remain with no new changes to FOFA laws. Adviser Licensees (Dealer Groups) receiving "volume rebates" from banks and wealth managers based on their "dealer groups" sales volumes would discontinue.

Bonuses for bank tellers

Banks using "balanced scorecards" for their bank staff as part of their sales revenue and bonus targets by referring customers to bank financial advisers (in the attempt to retain customers by cross selling additional bank products) may need to change their bonus structure for bank staff as critics and the financial sector union believe they encourage a sales culture. Moving forward FOFA rules disallow banks to remunerate their staff this way.

Final Thoughts

While these changes required additional resources for advisers and licensees to implement; as with any business wanting to remain in business, the costs of implementing these new changes will be ultimately passed onto the consumer. 

Albeit clients will experience an increased cost I more strongly believe they are a step in the right direction to rebuilding the bridge of trust that is the foundation of the relationship between client and adviser.

Here is a great video to explain why it's so important to seek out a "fiduciary/independent" adviser as apposed to a "broker/vertically integrated" adviser. https://www.youtube.com/watch?v=Dg5RRMAc1GY

This post was written by Peter Horsfield, as such they are his personal views. Peter helps you to focus on what’s most important, the right strategies at the right time. To learn more about How to become Financially Independent visit Peter Horsfield Smart Advice

 About Peter Horsfield

 Peter Horsfield in an Authorised Representative and Investsure Holdings Pty Ltd ABN 16 050 286 630 as trustee for Horsfield Family Trust ABN 55 609 068 513 is a Corporate Authorised Representative of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523.