It may have taken more than six months to incubate, but sustained criticism from industry regarding the recommendations of the Royal Commission is putting pressure on the government to reassess its commitment to their full implementation. Sections of the industry are now saying that many recommendations did not fully take into account the repercussions of the recommended changes – particularly with regards to advice – and warn they could ultimately leave the industry decimated and many Australians without access to quality advice.
Phil Anderson, the AFA’s General Manager, Policy and Professionalism explicitly called for a debate (albeit belatedly according to some AFA critics) to challenge some of the findings because – among other things - of the lack of consultation with industry following the findings being handed down.
Many have suggested pre-election politicking had muddied the waters, with both the opposition and Government keen to capitalise on the public outrage by accepting the commissions findings without batting an eyelid. In a letter to AFA members, Anderson points out that 10 days before the release of the final report the then Shadow Treasurer, Chris Bowen said, “A Labor government will seek to carry out all the recommendations of the Royal Commission into financial services.” Bowen went on…"Your default position should be, if the Royal Commission recommends it, it shall be done." Perhaps not keen to be seen lagging in the political stakes, the Government released its response just three days after receiving the final report, announcing it would take action on all 76 recommendations.
Since then, the government has notably backed down on recommendations mooted for the mortgage broking industry. That backdown, along with a hardening realisation of the consequences of full implementation of other recommendations has emboldened other sections of the industry to lobby hard against changes – most notably changes to grandfather commissions and the corollary effect on adviser revenue models in general.
Anderson noted the limitations of the RC’s recommendations, alluding to the fact that their blind acceptance was akin to living in a dictatorship, saying “when the recommendations of one person, appointed on the basis of their legal, not industry experience, go unchallenged, despite the broad and devastating impact they may have, it reads like a form of autocracy.
Anderson raised issues such as the exit of large bank owned licensees and the impact of remuneration changes, saying that the grandfathered commission issue stands out as a demonstration of the lack of good policy process. The letter also warned against government overreach, and questioned whether the Commission had breached its terms of reference – particularly paragraph (k) in sufficiently having:
“regard to the implications of any changes to laws, that you propose to recommend, for the economy generally, for access to and the cost of financial services for consumers, for competition in the financial sector and for financial system stability.”
These concerns have been echoed by other critics, notably John Ardino, the founder and executive chairman of dealer group Lifespan, who has thrown financial weight behind a constitutional challenge to legislation to ban grandfathered commissions. Ardino told IFA that the government was embarking on a regulatory road map that will decimate the number of advisers and dramatically increase the cost of advice, saying “the legislation before the Senate to abolish grandfathered commissions would increase the cost of receiving financial advice and lower consumer access to advice significantly when the opposite was needed”.
Ardino mirrored the questioning of clause “k” in the commission terms of reference and criticised the post commission process, saying “the government adopted these flawed recommendations from the Hayne royal commission without any objective justification that grandfathered commissions have caused any harm to clients.”
In a broadside against the commission's findings Ardino said “they’ve demonstrated in a number of ways that they probably don’t understand the industry. Let’s face it they’re a group of lawyers,” he said. Ardino pointed out that “in an industry that services a couple of million people, you can find a couple of hundred cases of bad advice…there was some bad advice highlighted, but a lot of what was highlighted was poor corporate behaviour and greed, and not necessarily greedy advisers but greedy organisations running the advice business.”
Defenders on the advice industry have pointed out that the impact of the recommendations has been felt greatest by thousands of self-employed advisers and the staff working in advice practices. As Anderson noted, there are real world impacts for people in the advice industry, For some advisers it will mean losing their lifetime savings, but for the big institutions, offloading advice operations is just a matter of a rounding error.
If this type of criticism is sustained and co-ordinated - without the pressures and spotlight of an impending election, there may still be some room for further discussion and amendment to much of the most criticised aspects of the commission’s recommendations.
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Comments4
"After 40 years in the industry I'm sorry to say the Life Industry is now on Life Support and unless something is done quickly to encourage specialist risk writers to write new business they will stop. Planners might still write the 5 or 10 cases a year they can't avoid but that's not enough for the insurers to survive. Meanwhile, healthy lives will cancel policies & sick ones will hang in there for the inevitable claim. Clients will not pay enough in fees to make writing a case profitable and there is no profit at 60% after expenses, which not only means existing advisers will stop but that there are no new risk writers taking their place. Employees get paid today for the work they did yesterday. Expecting risk advisers to wait a few years until their renewals roll in is ridiculous. And the big losers? Millions of Australians who will be left without access to well structured, meaningful cover and the hundreds (thousands?) who lose their jobs in the industry. Those in charge will eliminate a very few bad apples by torching the entire orchard. It is very sad."
Guy Mankey 17:57 on 27 Sep 19
"The first point that should always be the number one consideration with any legislative change is; Will this change improve the status quo, or will it be a detriment that causes mayhem for little gain. We have become a world that is focused on ticking boxes and being seen to be doing something, rather than focusing on the real issues, backed up by facts, then getting on and fixing the issues correctly with as little impact as possible on the vast majority of decent, hard working people who actually keep the economy going. What the Hayne Royal Commission did was to prove that many in the Legal Profession, are out of touch with the real world and that they live in a fantasy world of retrospective ideology and theory that makes them experts in hindsight in their own minds. As Mike Tyson stated, all the best laid plans turn to S _ _ T as soon as you get punched in the face. Even though Mike is not noted as a scholar or a great thinker, his statement resonates with the rest of the world, because that IS the real world. Trying to put everything into a neat box with steps 1 to step 200 in that order, is not how the world works or even how people think, yet the process of picking over every word and step that was historically taken and tearing it apart because the process was not followed exactly as in the manual, is the joyful world of lawyers who charge hundreds of dollars an hour to be experts on areas they know little about. The problem and solution was always staring the Government in the face, was always so simple to fix and yet the Government passed the baton to the very profession whose main purpose in life is to complicate issues, of which they are masters. So we ended up with, what we were always going to get, which was many words with little merit, full of platitudes and theory based on a lack of understanding, covered up with legal interpretation and moral outrage. Shame the outrage and fixes, actually did the opposite and now we have to endure WID ( Worst Interest Duty ) as clearly, BID ( Best Interest Duty ) only applied to a tiny minority, leaving as usual the majority in a worse position."
Jeremy Wright 16:13 on 27 Sep 19
"Thanks Wayne, no flies on you! Mr Ardino's name has now been corrected. Thank you, as always, for the feedback!"
Adviser Ratings 15:03 on 27 Sep 19
"Good coverage of the issue and the points are well made. Let's hope the government are listening. Shame that, in all bar the first instance, you managed to spell Ardino incorrectly."
Wayne Leggett 14:54 on 27 Sep 19