CFA recommends sweeping reforms to wealth sector

— 1 minute read

The global CFA Institute and its Australian subsidiary have released 10 major recommendations for reform in the wealth management industry and argue that simply disclosing vertically integrated conflicts is not enough.

In a 60-page report titled Professionalising Financial Advice, the CFA Institute and CFA Societies Australia note that they do not see a single solution to the problems highlighted by the Hayne royal commission. 

“Rather, we believe that reforms are needed in several areas, and that all these areas must be addressed together to ensure better outcomes for financial advice industry clients,” the Institute said. 


“Prior to the Hayne royal commission, Australia has had many inquiries and reviews of the financial sector, which have produced a long list of recommendations, ranging from structural reforms and policy changes, to establishment of new regulatory bodies, to moves to improve professionalism and education standards in the industry.”

The CFA Institute said it is clear that the effectiveness of reforms to date has been “questionable” and argues there is still much room for improvement in terms of outcomes for consumers. 

“Strong steps must be taken this time to ensure genuine, lasting change in the financial advice industry in Australia. Without such steps, problems will continue to recur, with no real change in the way businesses operate, as they have, following previous inquiries.”

The Institute recommends that grandfathered commissions be outlawed “immediately”, raises concerns with platform fees, believes the industry must ensure independence of advice and aligns its remuneration model to a “balanced scorecard” approach outlined in the 2017 Sedgwick review. 

The Institute’s eighth recommendation states that “a ban on vertical integration should remain under active consideration”, despite the royal commission’s decision not to dismantle vertically integrated wealth models. 

Speaking to Investor Daily, CFA Societies Australia Advocacy Council chair Stephen Dunne said there are conflicts within the vertically integrated model that need to be continually monitored. 

“From our perspective, there are a number of recommendations that we’ve put forward. Should they all manifest themselves, that will help to ameliorate some of those conflicts. If they are not, then those conflicts could potentially be more pronounced.”

Asked whether disclosing conflicts and biases, as recommended by the royal commission, would be enough to mitigate risks, Mr Dunne said: “By itself, no; there is no one silver bullet that will help transition the system from where it is today to where it needs to be. There needs to be a battery of changes.

“Disclosure wont be adequate by itself.”

A full list of the recommendations from the CFA Institute and CFA Societies Australia can be found below: 

Recommendation 1: Strengthen the enforcement of the best interest duty.

Recommendation 2: Deter bad behaviour by establishing appropriate consequences for those who act against the interest of clients.

Recommendation 3: Remove the grandfathering of commissions.

Recommendation 4: Compel advisers to disclose and explain the fees that clients are paying.

Recommendation 5: Ban conflicted remuneration arising from platform fees.

Recommendation 6: Reward the right behaviour by aligning the remuneration of both advisers and senior executives to the long-term interest of customers.

Recommendation 7: Require all financial advisory firms to disclose institutional ownership or exclusive product relationships.

Recommendation 8: A ban on vertical integration should remain under active consideration.

Recommendation 9: Establish an independent professional body to register financial advisers.

Recommendation 10: Require individual licensing of financial advisers.


CFA recommends sweeping reforms to wealth sector
investordaily image
ID logo
James Mitchell

James Mitchell

James Mitchell is the editor of the Wealth and Wellness suite of platforms at Momentum Media including Investor Daily, ifa, Fintech Business, Adviser Innovation and Wellness Daily.

related articles

promoted stories

Website Notifications

Get notifications in real-time for staying up to date with content that matters to you.