The Hayne Report – more pain to come?
Final Report released
Much of the commentary since the release of Commissioner Hayne’s Final Report has decried the let-off given to the banks and the burden his recommendations will place on individual financial advisers.
Some say that those who behave appropriately are being punished for the acts of a few bad apples.
But we believe the report offers financial advisers and their licensees who do the right thing the opportunity to demonstrate their trustworthiness and to flourish.
Call to a higher standard
Despite some of the more alarmist commentary, it is clear that Hayne wants the industry to succeed – to achieve that enviable goal of being recognised by the community as a respected profession.
The Report is a call to a higher standard. Advisers and licensees can either embrace that opportunity, demonstrate their adherence and set themselves apart from the bad apples, or ‘rage against the dying of the light’.
So, what is Hayne’s road map? The Commissioner outlines three matters that, if addressed, will help the industry to achieve the lofty goal of being a respected profession.
1. Transparent advice fees
Hayne’s view is that the industry practice of deducting ongoing service fees from clients’ investment accounts makes those charges ‘invisible’. Services must be outlined with greater clarity and records maintained to enable advisers to justify the charging of those fees.
Culture will also need to change.
How many clients do you have on ongoing service arrangements?
Are you able to service all of those clients?
Do you, as licensee, monitor records of ongoing service arrangements closely enough to guarantee your advisers are fulfilling their obligations?
2. Reduce the conflicts that lead to inappropriate advice
When you are an adviser, whether a lawyer, accountant or financial adviser, there are always conflicts between your duty to your client and your own self-interest. In Hayne’s view, advisers operate in a system with so many conflicts, interest will often trump duty.
He argues that the premise of the current best interests duty is flawed because the system leads advisers to promote self-interest over the interests of their clients. He recommends removing the safe harbour, but not yet. He is scathing of the role that disclosure can play in minimising conflicts but nevertheless recommends an obligation to disclose the lack of independence of an adviser. Perhaps this will lead to more genuinely independent advisers.
3. An improved disciplinary system
A “hallmark of a profession is the existence of a credible and coherent system of professional discipline – the ultimate sanction available to be imposed under that system being expulsion from the profession.”
Commissioner Hayne has laid out a framework for a new disciplinary system which provides for mandatory individual registration of advisers and a central disciplinary body to manage the conduct of advisers. He has also recommended that reference checking similar to the current Australian Banking Association protocol be mandated across the industry.
Not only that, the Commissioner has exhorted ASIC to make proper use of their banning powers but also to seek civil and criminal penalty orders from the courts.
Deserve the community’s trust
The hallmarks of a profession are trust and respect, and in the wake of the scandals within the financial advice industry and the Royal Commission’s findings, it will be vital for licensees and practices to demonstrate that they deserve the community’s trust.
For more information or to speak to a team member, contact Scope Legal today.