Financial services are a major part of our economy and an integral part of our lives; from buying a car, a house, starting a business and making decisions about our financial future. Studies have shown people worry about money more than their health, thus we need to have a system in place that is of a high standard.
The Royal Commission Report, is the first step in improving this system. The report contained 76 recommendations, including:
- The End of Trailing Commissions – this is a payment from an investment or superannuation product to an adviser. These were banned for any new product from 2013. However, existing arrangements could continue. The report recommends the removal of this fee on all policies. This would therefore reduce the cost of the financial products to the consumer.
- Annual review of Ongoing Advice Fees – this would require everyone to agree on what fees are to be charged by their adviser each year. By making this change, it will put an end to people being charged for no service.
- Banning of Commissions for Mortgage Brokers – mortgage brokers can currently receive commissions on loans they arrange for their customers. The report recommends this to be banned. Mortgage brokers will need to charge their clients directly for their services; this has both advantages and disadvantages. It will stop the unscrupulous mortgage brokers encouraging customers taking larger loans that they may not be able to afford. However, as people may not be willing to pay an upfront fee to a broker to review their loan(s), this may reduce competition which in turn may increase interest rates.
In addition to recommendations we need the regulators to take action. To date there has been good news on this front. The Australian Securities and Investment Commission (ASIC) has stepped up its activities and announced that Commonwealth Financial Planning is required to stop charging all financial planning clients ongoing fees and not enter into any new fee agreements with new clients until it can meet the standards. It is important to know that these are only recommendations. It is up to the government to pass these changes into law.
We will be following this very closely at Adrians, we are in support of these changes as they overdue to improve the quality of the financial services industry. If you have any concerns about the Royal Commission findings, please contact David van den Berg from Adrians Private Wealth.