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.