Synchron responds to Banking Royal Commission Final Report

From

Don Trapnell

Synchron believes the Royal Commission Final Report will act as a catalyst to move the advice profession forward.

“We have experienced many years of upheaval and reform but now have some certainty around how the advice profession can move on from the past and into a better future,” said Synchron Director, Don Trapnell.

Mr Trapnell said Synchron is particularly pleased that the Royal Commission recommendations did not include a recommendation to ban the vertical integration model, as Australians need access to advice and vertically integrated businesses play a role in making it available to consumers.

“However, the relationship between the product manufacturer and its advice network must be made very, very clear to clients,” he said. “If you are an adviser and you are aligned to an institution, your clients must understand that you are aligned to that institution, that the institution manufactures financial products and that those products may be recommended to them. It must be as clear to clients as knowing that when they drive into a Caltex service station, they are purchasing Caltex fuel.”

Mr Trapnell said that recommendation 2.2 Disclosure of Lack of Independence will help with this task. “The recommendation requires advisers to provide a written statement explaining simply and concisely why they are not independent, impartial and unbiased and will help vertically integrated advisers explain the relationship to their clients.”

Given the definition of ‘independent’ Mr Trapnell said that this recommendation will apply to the vast majority of financial advisers operating in Australia, including Synchron advisers.

Mr Trapnell also said two other recommendations, the review of life insurance commissions in 2022 and the removal of grandfathered commissions in January 2021 are causing advisers some concern.

“There was always going to be a review of life insurance in 2022, it was part of the Life Insurance Framework,” he said. “The only difference is that Commissioner Hayne has said we should look at life insurance commissions with a view to bringing them down to zero, unless there is a commercial reason not to.

“There is a very obvious commercial reason not to and we will be talking to the Government to explain the Dutch experience whereby commissions on life insurance were removed with serious negative consequences for the consumer and the economy. Surely it must occur to the Government that the Dutch market is the only market in the world that has removed commissions on life insurance.”

Mr Trapnell said the recommendation to ban grandfathered pre-FoFA investment commissions is likely to worry affected advisers, who will need support to deal with the change. “One way of looking at it though, is to realise that advisers selling books of clients that were generating grandfathered commissions were receiving about two times revenue. January 1, 2021 is two years away, so the recommendation means advisers with these books will receive two times revenue, therefore the net effect is zero.”

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