The Association of Financial Advisers (AFA) has strongly suggested the Royal Commission simply got it wrong when it suggested that intermediaries including financial advisers have an obligation to act on behalf of those who pay them rather than the client.
As well, the AFA’s general manager, policy and professionalism, Phil Anderson has developed a policy paper in which he argues that financial advice is a service that the Royal Commission “just didn’t seem to have properly understood”.
“Whilst financial advice may include the recommendation of financial products, I simply do not believe that financial advisers are intermediaries for product providers,” Anderson said.
He said he believed that in the Royal Commission’s final report which included six norms of conduct, the Commissioner, Kenneth Hayne, had suggested that “intermediaries should act only on behalf of, and in the interests of the party who pays the intermediary”.
“Let’s be very clear here, the Commissioner is suggesting that intermediaries (and he is referring to financial advisers) should act in the interests of product providers and not their clients. This cannot be correct,” he said.
“In the context of the knowledge that financial advisers and mortgage brokers do receive payments from product providers for life insurance and mortgages, it just seems such a confused proposition to suggest that they need to act in the best interests of the product provider,” Anderson said. “This intermediary rule would only work if conflicted remuneration was fully banned, however the Commissioner has acknowledged the continuation of commissions for life insurance and mortgage broking, at least for some time. How can these rules therefore apply universally?”
The AFA executive suggested that final report of the Royal Commission had reflected ideological opposition to conflicted remuneration and when faced with some practicalities had accepted there might be ground where conflicted remuneration was actually in the best interests of consumers and provided for an efficient market.
“It is unfortunate that there has been no genuine debate on the issue of conflicted remuneration and who an intermediary owes a duty to in either the media or the political arena, however it is apparent that what the Royal Commission has argued, has holes in it, and will not work in the interests of consumers in all cases,” Anderson said.
He said it was obvious that the most sensible position on conflicted remuneration was that it should be eliminated in cases where it was not in the best interests of consumers.
“It is clear that the Commissioner wants simplicity and the avoidance of exemptions, however where such exemptions are in the best interests of consumers, then they should be allowed to continue,” Anderson said.