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Royal Commission Must Review Vertical Integration

The Royal Commission into the Banking, Superannuation & Financial Services should examine the vertically integrated structures of banks and advice networks but should be cautious about receiving advice from those who built the networks, an industry consultant has claimed.

Connect Financial Service Brokers Chief Executive, Paul Tynan

Outlining the views he will be relaying to the Commission, Connect Financial Service Brokers Chief Executive, Paul Tynan said there was a need to “…be wary of advice from the sector’s failed captains of industry as they created the vertical integration and bad advice mess in the first place”.

Tynan said banking and financial advice were incompatible and “…the essential difference is that banking has a short-term time horizon and advice has a long-term time horizon”.

“This most basic of contrasts has been the foundation for disastrous decision making resulting in high profile failings that in turn led to calls and the need for a Royal Commission,” Tynan said.

“…be wary of advice from the sector’s failed captains…as they created the vertical integration and bad advice mess in the first place”

He added that while the financial services sector has gone through ‘an embarrassing litany of failures’ that have undermined consumer confidence, “…far too many of these disasters involved a major bank and confidence will only return with processes that provide greater accountability and penalties”.

According to Tynan, banking, distribution, product and advice should be separated and he believes an outcome of the Royal Commission will be the end of advice models based on the ownership of clients and the beginning of transferring licensing away from the dealership level to the adviser level.

“This simple move would eliminate industry issues like vertical integration, proprietary approved products lists and client ownership issues and lead to greater advice transparency for consumers,” Tynan said, adding that any licensing regime must distinguish between proprietary advice provided by an institution or product provider and non-proprietary advice.