Will the RC stand up to the scrutiny of history?

This is the last print edition of Money Management for 2019 and, as such, it is appropriate to reflect upon the year that was and to acknowledge that the past 12 months have probably been the most challenging ever encountered by financial advisers and the broader financial services industry.

Since January we have been witness to:

• The final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry;
• The Government’s acceptance and response to the recommendations contained in that report;
• The muscle-flexing on the part of the financial services regulators based on the Royal Commission findings;
• The continued roll-out of the Financial Adviser Standards and Ethics Authority (FASEA) regime including the holding of exams;
• The continued exit of the major institutions from wealth management including that of Westpac;
• The exit of scores of financial advisers from the industry and the almost certain continuation of those exits.

But if the Royal Commission represented the most fundamental element in generating the change which has occurred throughout 2019, it would seem not unreasonable to question, as the Association of Financial Advisers (AFA) has done, whether the Royal Commission deserves the almost unquestioning support it has thus far received from the Federal Government.

Given the amount of negative publicity which surrounded the financial services industry in the lead-up to the Royal Commission, the Government’s initial reluctance to even hold such an inquiry and the proximity of the release of the Commissioner Kenneth Hayne’s findings to the 18 May Federal election, it is understandable that the Treasurer, Josh Frydenberg, committed so heavily to their implementation.

However, any objective assessment of the Royal Commission must acknowledge that the Royal Commission was both briefer and narrower than it ought to have been and that perhaps, as a consequence, Hayne’s recommendations lacked the balance which might have been generated by a longer and more thorough approach.

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The bottom line, however, is that notwithstanding the shortcomings of the Royal Commission it will continue to influence the direction of the financial services industry for years to come with too few people questioning the outcome lest they be tainted by the industry’s sins of the past.

The other major element which must be counted as impacting the financial advice sector in 2019 was, undoubtedly, the FASEA regime with the past 12 months representing the period during which the authority sought to implement the practical roll-out of its various elements, not least the financial adviser exam.

At the time of writing, the first two exams had been held generating pass marks of 90% and 88% respectively, suggesting that most of those advisers who felt confident enough to sit the test early were justified in doing so. The question is, however, whether the pass rate will remain so high this time next year.

For a significant cohort of advisers, the next two years are likely to be their last in the industry as they exercise their choice not to pursue the further education necessary to obtain a Bachelor degree or sit the adviser’s exam. As a result the look and feel of the industry is likely to be irrevocably changed.

As I mentioned earlier, this is the last print edition of Money Management for 2019 and so on behalf of myself and the entire Money Management team I would like to wish our readers a safe and merry Christmas and a prosperous 2020.