{"id":28226,"date":"2014-12-08T17:48:08","date_gmt":"2014-12-08T06:48:08","guid":{"rendered":"https:\/\/riskinfo.com.au\/news\/?p=28226"},"modified":"2015-01-13T16:59:59","modified_gmt":"2015-01-13T05:59:59","slug":"summary-of-key-fsi-recommendations","status":"publish","type":"post","link":"https:\/\/riskinfo.com.au\/news\/2014\/12\/08\/summary-of-key-fsi-recommendations\/","title":{"rendered":"FSI Report – Key Issues for Advisers"},"content":{"rendered":"

The introduction of greater accountability for product issuers, increases to adviser competency and better transparency for consumers are among the recommendations handed down by the Financial System Inquiry.<\/span><\/p>\n

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\"David<\/a>
David Murray, AO<\/figcaption><\/figure>\n

The FSI\u2019s Final Report has delivered 44 recommendations to Government, covering a broad spectrum of industry issues. As well as the proposal to remove upfront commissions for life insurance advice (click here<\/a> for more), the FSI has delivered a strong message to product providers and advisers that they need to \u2018lift their game\u2019 in terms of consumer protections.<\/p>\n

\u201cOur recommendations on consumer outcomes reflect a view that disclosure and financial literacy are not sufficient by themselves for the system to work in the interests of consumers,\u201d explained FSI Chair, David Murray<\/strong> AO.<\/p>\n

\u201cThis represents a paradigm shift for the system. We have recommended higher obligations on product manufacturers and distributors; our stronger regulatory framework and a more proactive regulator. This is designed to ensure that there are incentives for firms to improve their culture and fair treatment of their own customers.\u201d<\/p>\n

The following summary of the FSI Final Report focuses on key recommendations impacting financial advisers, their practices and their clients.<\/p>\n

Better alignment of interests of consumers and financial firms<\/strong><\/p>\n

Along with a proposal to limit life insurance commissions to a level-only model<\/a>, Recommendation 24 of the FSI Final Report calls for raised standards of conduct and professionalism across all those operating in the industry.<\/p>\n

The Report says that recent cases of poor financial services provision have raised serious concerns about the culture within financial services firms, and their apparent lack of customer focus:<\/p>\n

… disclosure and financial literacy are not sufficient by themselves for the system to work in the interests of consumers<\/h6>\n

\u2018The Inquiry considers that cases of consumer detriment and poor advice reflect organisational cultures that do not focus on consumer interests. Such cultures promote short-term commercial outcomes over longer-term customer relationships. This has contributed to a lack of consumer confidence and trust in the system. In research undertaken by Roy Morgan, only 28% of participants gave financial planners \u2018high\u2019 or \u2018very high\u2019 ratings for ethics and honesty, and trust in bank managers was held by just 43% of participants. In addition, ASIC found only 33% of stakeholders agreed that financial firms operate with integrity.\u2019<\/em><\/p>\n

To drive cultural change, the FSI recommends that the industry raise standards of conduct and professionalism. According to the FSI, this would require both a coordinated industry approach and focus by individual firms. It is suggested that industry associations could lead this initiative, with stakeholder input from ASIC and consumer organisations. The Report also proposes the introduction or enhancement of individual firm or industry codes of conduct as one way in which industry could set raised standards and hold themselves accountable.<\/p>\n

The FSI Report also calls for ASIC to be granted additional powers to ban individuals from managing financial firms. Currently, ASIC can prevent a person from providing financial services, but cannot prevent them from managing a financial firm. Nor can ASIC remove individuals involved in managing a firm that may have a culture of non-compliance.<\/p>\n

Product issuer obligations and ASIC intervention power<\/strong><\/p>\n

Recommendations 21 and 22 of the Final Report focus on improving the accountability of financial product manufacturers.<\/p>\n

The FSI has recommended that a new, targeted and principles-based product design and distribution obligation be introduced, to reduce the incidence of product failure. The obligation would require product issuers to identify target and non-target markets for the product before it is released, and in some cases to conduct consumer testing prior to implementation<\/p>\n

Greater engagement between product issuers and distributors is also sought, to reduce inappropriate distribution incentives being paid.<\/p>\n

Further, because the Inquiry believes industry-led standards have not been sufficient by themselves to address serious conduct issues, a new, pre-emptive power should be granted to ASIC to allow it to intervene if the regulator believed a product would cause significant consumer detriment.<\/p>\n

This power would allow ASIC to:<\/p>\n