How to comply with remuneration recommendations of the Royal Commission
It was the findings from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry that sparked a complete overhaul of the finance and banking sector. With no area left unturned, it means that Australian financial institutions are forced to reassess their internal and operational processes, dealings with clients and their employees – particularly around remuneration.
In this article, we ask, do you know how to remunerate staff in a manner that complies with both the current regulatory regime and the recommendations made by the Commission? And, for financial advisers, in particular, the recommendations can affect company culture, organisational management and remuneration of advisers.
The rules for compliance are complex and, in our experience, many financial planning practices don’t comply. That’s why we’ve gone through the report with a fine-tooth comb to make clear what is expected of financial advice practices since the Royal Commission released its Final Report.
Remuneration recommendations made by the Royal Commission
Financial service entities have been advised to review the design and implementation of their current remuneration systems for front line staff to ensure they focus on not only on what staff do, but also on how they do it. As well as this, boards will also need to be considered in this review.
The Commission wants to redirect the culture of the industry away from evaluating success based on financial targets alone, and towards the best interests of customers. Essentially – don’t just reward advisers based on the amount of revenue they can generate – ensure that you factor in compliance outcomes and other metrics, such as customer retention or satisfaction.
We don’t expect formal legislation here – the Government’s Royal Commission Implementation Roadmap indicates that the recommendation is something they expect all financial practices to implement themselves on their own accord. ASIC will update its regulatory guides appropriately in due course, but these obligations already apply to your business and ASIC is looking closely at adviser remuneration, prioritising the recommendations made by the Royal Commission final report.
Implementing changes to remuneration arrangements in your practice
There are a number of ways an advice practice can respond to these obligations. This can include implementing balanced scorecards, or designing and implementing criteria, such as compliance outcomes and customer satisfaction, that must be met before a bonus can be paid. Start by considering the following:
- Do your current employment contracts allow you to change your employees’ bonus arrangements
- Are your bonus arrangements discretionary?
- What legal issues will arise if you make changes to your employees’ remuneration arrangements?
Making changes to employment contracts is the same as for any contract – parties must reach an agreement unless there’s a right for one party to change the contract unilaterally. Adviser employment contracts are also governed by the Fair Work Act and the Banking, Finance and Insurance Award 2010. These regulations require consultation with employees before making major changes to an employment contract.
We can lend a hand
Do your current remuneration arrangements comply with the recommendations of the Royal Commission? At Scope Legal, we provide expert advice to determine what compliant remuneration arrangements look like, and to assist you in changing your employment contracts to reflect those arrangements. Get in touch with us today.
We’ll be at the Financial Planners Association
Scope Legal’s senior financial services lawyer, Melanie Taylor, will be talking at the Financial Planners Association on 12 December, joined by an experienced HR lawyer and HR consultant. The roundtable of thought leaders will take invited advice practices through in-depth discussions of HR Compliance and remuneration arrangements.