This is kind of a big deal
This is kind of a big deal
The big four banks and AMP will be under the spotlight for the next fortnight as the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry examines the conduct of the institutions that control most of Australia’s financial planners.
Following two weeks of public hearings last month, picking over the mortgage broking industry, the inquiry has now started public hearings into what’s been going on in financial advice and financial planning, and how the advice industry has been treating consumers.
A royal commission has extensive powers to call witnesses and compel them to give evidence. If someone refuses to co-operate they can be held in contempt and jailed. It can ask companies and individuals to produce documents – even those that might be considered confidential or commercially sensitive. Individuals treat an appearance at a royal commission inquiry lightly at their clear peril.
All Australians ought to pay attention to what’s going on in this inquiry, or at least pay attention to its final report when it comes out in February next year (an interim report is due to be released in September). There’s a lot of ground to cover in a short period of time but Commissioner Kenneth Hayne has, to date, conducted the inquiry in an efficient and no-nonsense manner. And the public hearings are only one part of the inquiry’s work. Behind the scenes it has been working hard to piece together a picture of what’s going on, calling on big institutions to produce reams of information about their advice businesses.
The commission has turned its gaze on the financial planning industry. Over the past 10 years or so, it’s been subject to literally dozens of inquiries, reports and other kinds of poking and prodding, all designed to make it better. And yet here we are, with a royal commission – the mother of all inquiries – now looking into it. Has nothing really changed?
The Future of Financial Advice (FoFA) legislation from 2012 was good as far as it went, but for some people it didn’t go far enough. So last year, the Corporations Amendment (Professional Standards of Financial Advisers) Act came into effect, which, among other things, sets new minimum education standards for all advisers; requires them to adhere to a new, industry-wide code of ethics; and requires all advisers to ensure strict new continuing professional development guidelines are adhered to (See: 5 reasons financial advice is about to get better).
An important task for the commission will be to assess how two key and quite radical pieces of law have, or will, affect the quality of financial advice and the conduct of financial advisers. It will look at established cases of misconduct, and examine how things were addressed by the organisations that provided the advice. In this way, it will test if recent legislative reforms are adequate, or likely to be adequate, to protect consumers better, and raise advisers’ standards of conduct, education and ethics. And if it thinks not, it is open to the commission to make recommendations on how things can be improved.
At the end of the day, all of the legislative reforms and the royal commission inquiry are designed to identify how consumers of financial advice can and should be treated better by advisers and the organisations that control them. Good financial advice changes lives for the better, and it’s fair to say more people would get financial advice if the industry had a better reputation.
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