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Home / Plan your retirement / Financial advice / Royal Commission: 10 recommendations for financial advice

Royal Commission: 10 recommendations for financial advice

February 4, 2019 by SuperGuide 1 Comment

Reading time: 3 minutes

On this page

  • Ongoing fee arrangements
  • Lack of independence
  • Quality of advice
  • Conflicted remuneration
  • Professional discipline of financial advisers

The government today released the Final Report into the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Below are the 10 recommendations concerning financial advice.

See also the Royal Commission’s 9 recommendations for superannuation.

Ongoing fee arrangements

Recommendation 2.1 – Annual renewal and payment

The law should be amended to provide that ongoing fee arrangements
(whenever made):

  • must be renewed annually by the client;
  • 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; and
  • may neither permit nor require payment of fees from any account held for or on behalf of the client except on the client’s express written authority to the entity that conducts that account given at, or immediately after, the latest renewal of the ongoing fee arrangement.

Lack of independence

Recommendation 2.2 – Disclosure of lack of independence

The law should be amended to require that a financial adviser who would contravene section 923A of the Corporations Act by assuming or using any of the restricted words or expressions identified in section 923A(5) (including ‘independent’, ‘impartial’ and ‘unbiased’) must, before providing personal advice to a retail client, give to the client a written statement (in or to the effect of a form to be prescribed) explaining simply and concisely why the adviser is not independent, impartial and unbiased.

Quality of advice

Recommendation 2.3 – Review of measures to improve the quality of advice

In three years’ time, there should be a review by Government in consultation with ASIC of the effectiveness of measures that have been implemented by the Government, regulators and financial services entities to improve the quality of financial advice. The review should preferably be completed by 30 June 2022, but no later than 31 December 2022.

Among other things, that review should consider whether it is necessary to retain the ‘safe harbour’ provision in section 961B(2) of the Corporations Act. Unless there is a clear justification for retaining that provision, it should be repealed.


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Conflicted remuneration

Recommendation 2.4 – Grandfathered commissions

Grandfathering provisions for conflicted remuneration should be repealed as soon as is reasonably practicable.

Recommendation 2.5 – Life risk insurance commissions

When ASIC conducts its review of conflicted remuneration relating to life risk insurance products and the operation of the ASIC Corporations (Life Insurance Commissions) Instrument 2017/510, ASIC should consider further reducing the cap on commissions in respect of life risk insurance products. Unless there is a clear justification for retaining those commissions, the cap should ultimately be reduced to zero.

Recommendation 2.6 – General insurance and consumer credit insurance commissions

The review referred to in Recommendation 2.3 should also consider whether each remaining exemption to the ban on conflicted remuneration remains justified, including:

  • the exemptions for general insurance products and consumer credit insurance products; and
  • the exemptions for non-monetary benefits set out in section 963C of the Corporations Act.

Professional discipline of financial advisers

Recommendation 2.7 – Reference checking and information sharing

All AFSL holders should be required, as a condition of their licence, to give effect to reference checking and information-sharing protocols for financial advisers, to the same effect as now provided by the ABA in its ‘Financial Advice – Recruitment and Termination Reference Checking and Information Sharing Protocol’.

Recommendation 2.8 – Reporting compliance concerns

All AFSL holders should be required, as a condition of their licence, to report ‘serious compliance concerns’ about individual financial advisers to ASIC on a quarterly basis.

Recommendation 2.9 – Misconduct by financial advisers

All AFSL holders should be required, as a condition of their licence, to take the following steps when they detect that a financial adviser has engaged in misconduct in respect of financial advice given to a retail client (whether by giving inappropriate advice or otherwise):

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  • make whatever inquiries are reasonably necessary to determine the nature and full extent of the adviser’s misconduct; and
  • where there is sufficient information to suggest that an adviser has engaged in misconduct, tell affected clients and remediate those clients promptly.

Recommendation 2.10 – A new disciplinary system

The law should be amended to establish a new disciplinary system for financial advisers that:

  • requires all financial advisers who provide personal financial advice to retail clients to be registered;
  • provides for a single, central, disciplinary body;
  • requires AFSL holders to report ‘serious compliance concerns’ to the disciplinary body; and
  • allows clients and other stakeholders to report information about the conduct of financial advisers to the disciplinary body.
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Learn more about financial advice in the following SuperGuide articles:

8 warning signs of a bad financial adviser

March 3, 2021

Getting financial advice? What your adviser needs to provide

February 11, 2021

Find an Australian independent financial adviser

February 1, 2021

Financial advice through super funds: What’s on offer?

September 15, 2020

Can I get free financial advice?

September 15, 2020

Finding a good financial adviser and making financial advice work for you

June 1, 2020

How much does financial advice cost?

June 1, 2020

What is the value of financial advice when it comes to your retirement?

March 14, 2020

5-step guide to the different types of financial advice on offer

December 14, 2019

7-point guide to what happens when you meet a financial adviser

December 13, 2019

Financial coaching: What is it and why may you need it?

October 3, 2019

Financial advice: What are the risks and benefits?

March 19, 2019

Super advice: How to find a suitable financial adviser

March 15, 2019

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IMPORTANT: All information on SuperGuide is general in nature only and does not take into account your personal objectives, financial situation or needs. You should consider whether any information on SuperGuide is appropriate to you before acting on it. If SuperGuide refers to a financial product you should obtain the relevant product disclosure statement (PDS) or seek personal financial advice before making any investment decisions. Comments provided by readers that may include information relating to tax, superannuation or other rules cannot be relied upon as advice. SuperGuide does not verify the information provided within comments from readers. Learn more

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Reader Interactions

Comments

  1. Emma Finchtas says

    February 21, 2019 at 8:46 am

    Actually I avoid all financial advisors, knowing commissions and trails cloud their decision that are best for my needs. Actually I prefer to research online and attend courses from university, tafe and asx education.
    Recently I have been approached by financial organisations I have chosen not to appoint after a meeting with them, and the self interest remains apparent. I would very much like to trust as I would like professional advise, and have no qualm paying commissions and fees that are based on integrity.

    Reply

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