Commissioner Kenneth Hayne said there were "at least three elements at play" which contributed to the raft of bad behaviour uncovered by his inquiry.
Influential actuarial firm Rice Warner says key financial planning laws must be overhauled as the push to separate financial advice from product recommendations intensifies in the wake of two weeks of damaging royal commission revelations.
"They [customers] rely totally on their adviser to guide them efficiently and honestly. One of the problems we have is that many aspects of strategic advice are not covered by legislation," said Rice Warner senior consultant Michael Berg.
This includes advice from a mortgage broker, advice about aged care and advice about health insurance.
Mr Berg said information uncovered at the Hayne inquiry – including potential criminal behaviour courtesy of AMP – had highlighted that the implementation of the Future of Financial Advice reforms had "not been a smooth one".
"FOFA needs a thorough review," he said.
"It has been a publicised issue that has been percolating within the financial services industry for years, namely how to separate financial advice from recommendations of financial products. Clearly, there will be a fourth wave of intervention following its findings."
One area Rice Warner defined as "grey" was the ability for superannuation funds to offer advice on investment options, extra contributions and insurance.
Under this so-called intra-fund advice "carve out" from FOFA, funds are not allowed to provide advice on switching funds, non-super financial products or retirement planning.
"Most funds offer intra-fund advice when moving a member into a pension under the same fund. However, it is critical to discuss retirement with the member's partner to know the family's full financial circumstances," said Mr Berg.
"If the adviser recommends putting the partner into the fund, it is no longer intra-fund advice – and they should have an Approved Product List for these contingencies."
Advisers at superannuation funds need to spell out "clearly" what they can and can't help members with under the current arrangements, added Mr Berg.
Provision of various forms of financial advice has become a key plank of super funds' member-retention strategy, amid a time of increased funds under management outflows, according to Rice Warner.
"There has been a sustained increase in the amount of advice that is delivered to their members," Mr Berg said.
According to the Adviser Ratings' Australian Financial Advice Landscape Report 2018 there are 565 planners currently directly employed by industry super funds, up from 367 five years ago.
"They also have an accredited panel of advisers who are 'industry-fund' friendly and they come from a cross section of licensees," said the report.
"Industry funds are making a significant shift into comprehensive advice – they are starting to see an outflow of funds and want to, in part, at least ensure some super stays in the fund post retirement and start to offer full services to their members."
At least five recruitment agencies had placed advertisements on online job site Seek over the past two weeks advertising jobs for financial planners at industry funds.
Statistics from the Australian Prudential Regulatory Authority (APRA) indicate that 44 per cent of superannuation funds experienced negative cashflow (excluding investment returns) over the 2015-16 financial year.
"It becomes clear that many superannuation funds are slowly losing the scale war and to survive will need to master the art of member acquisition and retention," said Rice Warner.
A spokesperson for Industry Superannuation Australia said "intra-fund advice is a basic service for members to get conflict-free limited financial advice".
"It is widely used across the superannuation industry," he added. "Some years ago, the supporters of reducing consumer protections in FOFA also opposed intra-fund advice, presumably because it was advice, not sales."
Last week the cries to dismantle pressures mounted on the big four and AMP to dismantle their vertically integrated models after damning revelations including that financial planning fees at AMP more than doubled after laws were introduced to ban unreasonable fees charged by financial planners and protect the interests of investors.
Commissioner Kenneth Hayne said on Friday there were "at least three elements at play" which contributed to the raft of bad behaviour uncovered by his inquiry.
"There are product manufacture, product sale, advice, and the way in which those three elements either fit together or don't fit together according to both existing firm structures," he said.
National Australia Bank, the Commonwealth Bank and ANZ have all made plans to become distributors of product, rather than manufacturers to varying, an acknowledgement that the risks are too great being involved in both. Westpac is the only big bank committed to its wealth arm, with its chief executive Brian Hartzer on Friday saying a retreat from wealth management may not be in the interests of the bank's customers.
By Alice Uribe
29 April 2018