The year is finally winding down, and what a year it has been in the financial advice landscape. The Royal Commission, drip feeding its revelations as it has, has dominated media coverage throughout the year and claimed numerous big scalps along the way. The structure of the industry is continuing to undergo massive change, including at the ownership and licensee level. Added to this, the very real prospect of a change in government federally will, in the short term at least, contribute to the uncertainty and flux that seem to be dominating the industry. Here we take a look back to see what has happened this year and going forward what might happen in the adviser landscape in the year ahead…
After starting the year reporting on the continuing changes in adviser movement and Licensee growth, March saw the Banking Royal Commission start its first public hearings. At the time, we wrote “The Banking Royal Commission kicked off, which inaugurates what will no doubt be a steady stream of revealing, negative, harmful, embarrassing and ultimately depressing headlines about certain behaviours and deeds of our major banks and other businesses associated with the financial sector.” And so it proved to be…
The first big scalp to be claimed was chief executive of AMP, Craig Meller, who announced he would be leaving his role with immediate effect. The commission revealed that AMP had misled ASIC over 20 times regarding customers who were charged fee for services they were never provided. In further revelations from the royal commission, NAB Staff were allegedly involved in a bribery ring to secure loans, and the CBA admitting some of its financial planners have been charging fees to clients who had died.
In response to these revelations, the Chief Executive of Choice, Alan Kirkland said:
“It’s clear the likes of AMP and CBA feel no compulsion to abide by the law and that’s why the law needs to change and we need to see bigger penalties,”
Treasurer (and future Prime Minister!) Scott Morrison responded by warning that AMP executives could face gaol time for their role in the scandal, and declared his confidence in ASIC, saying the regulators investigations into the revelations was continuing.
The commission continued in April with one of the more bizarre happenings for the year – the collapse of Dover boss Terry McMaster, whilst giving evidence in the dock at the Royal Commission. Less than 2 months later, Dover would shock the advice world by winding up and giving its advisers a weekends worth of notice.
With bad news continuing from the commission, in May, Adviser Ratings announced the public release of one of the most comprehensive reports on the financial advice landscape ever undertaken in Australia. The 2018 Financial Advice Landscape Report provided a wealth of information and analysis for advisers and identifies key industry trends including the rise of managed accounts and the mass migration of advisers away from bank owned and aligned licensees. This adviser migration has been linked to a rapid increase in privately owned licensees that has fuelled growth in total licensees by 33% in the last 3 years alone. Its analysis also included predictions based on evidence pointing to more than 50% of financial advisers exiting the industry leaving $900 billion of wealth looking for new home in the next 5 years and included advisers dissatisfaction with technology incumbents.
August saw the super industry in the spotlight at the Royal Commission and included ASIC being criticised for inadvertently fostering a climate of non or little punishment. To some, ASIC was seen as weak in the face of multi-billion dollar corporations that pledged, but failed, to do the right thing by customers. It also saw “combative” testimony from IOOF’s chief, Chris Keleher. That didn’t turn out all that well for Keleher, who recently stepped down from his role at IOOF pending an investigation. APRA has alleged that Kelaher, chairman George Venardos, chief financial officer David Coulter and two other executives are not fit and proper people to run a super fund. This was after IOOF was taken to task at the RC for having serious "conflict of interest" issues, such as when IOOF Investment Management had responsibility for acting in the best interests of trustees, as well as making a profit for shareholders.
Life insurance was next up at the commission, which heard evidence of fraud, a hard-selling sales culture and systemic malfeasance in the sector, including hearing that 8 out of 10 life insurers admitted there have been deficiencies in reviewing and updating medical definitions in the past five years. The Commission released it’s interim report at the end of September, with Commissioner Haynes assessment boiling down to banks chasing short-term profits at the expense of basic standards of honesty.
The end of the year saw the fact that FASEA legislative changes were sneaking up on advisers – if you aren’t covered by a license on Jan 1, the new requirements for advisers (relevant degree) will apply to you! FASEA released its revised standards framework in late November. The law changes have continued to create much consternation and criticism from the advice community, particularly for its seeming lack of recognition for previous adviser experience.
The Royal Commission has already seen a more aggressive posture from ASIC and APRA. The pending federal election, due in the first half on 2019 also has the potential to create further grief for the industry, particularly if banking, the Royal Commission and potential responses (after Hayne’s final report in Feb) become points of difference in the campaigning of the major parties.
It’s going to be a very complex and busy year for financial advisers. We see further fragmentation of the industry, particularly among the major licensee’s with the increase in self licensing of advisers continuing. If the Labor party does win the Federal election, it’s policies concerning dividend imputation and negative gearing will mean a lot of work for advisers and potentially major changes for those nearing their retirement. Would a new government be any more forthcoming regarding negotiation with advisers re FASEA requirements, or would they hang advisers further out to dry?
One thing is for certain, it will be an interesting year ahead…