Empowerment of individuals – not the dismantling of commercial enterprise – should be the focus of the recommendations to come out of the Hayne royal commission report, which is expected on Friday, Dr Simon Longstaff argues.

“What stood out most for me [during the hearings] was the royal commissioner invoking community standards and expectations for assessing conduct rather than just pure legality,” says Longstaff, whose views have become the yardstick for ethics in professional services since he became the first director of The Ethics Centre in 1991. Longstaff is also a member of the Financial Adviser Standards and Ethics Authority (FASEA) board of directors and holds board positions with the Banking and Finance Oath, BT’s professional standards council, Westpac’s stakeholder council and the IAG ethics committee.

Using community standards as a basis for acceptable conduct in wealth management offers an insight into the commissioner’s thinking, Longstaff tells Professional Planner in advance of the interim report.

Of submissions made to the royal commission, 84 per cent relate to misconduct or conduct of financial services entities that falls below community standards and expectations, senior counsel assisting Rowena Orr, the royal commission’s lead prosecutor, informed the hearing during her opening remarks back in February.

“What’s been revealed during the royal commission is individuals don’t have a thick enough ethical skin to withstand the abrasive commercial and market pressures that exist,” Longstaff says. “Hopefully one of the implications of the royal commission won’t be the commissioner and the industry abandoning its commercial imperatives, but [rather] asking, ‘How do we strengthen that ethical component?’, so we can rely on the fact we have our own internal resistance to taking action that by any reasonable standard is wrong.”

Five months since the searing second round of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry enveloped the advice industry, exposing widespread improper, unethical and dishonest conduct, Commissioner Kenneth Hayne’s views on what changes need to be made to the system will be outlined to policymakers for the first time in his interim report. The final report is due at the end of February.

Conflicted remuneration has resulted in the widespread charging of fees for no service, instances of undetected inappropriate advice and conduct, poor disciplinary procedures and vertically integrated business structures. These are the issues at the top of the commissioner’s agenda, based on questioning during hearings.

Orr raised issues around so-called vertically integrated business models during her closing remarks at the end of the second round of hearings but Longstaff reckons it’s unlikely that separation of product and advice will be among the commissioner’s recommendations.

Longstaff’s work with the Ethics Centre has formed part of the ethics component of the new FASEA standards, which are due to be finalised by the end of September.

“A big takeaway from the royal commission for many people who have been associated with the industry for a long time has been the way so many essentially good people have found themselves engaged in conduct they themselves found to be wrong,” Longstaff comments.

Commonwealth Bank executive Marianne Perkovic was one of the witnesses in mid-April who came under fire from the commissioner for failing to answer questions relating to a compliance risk report on one of CBA’s advice subsidiaries that found one adviser was aware a client had died in 2007 but continued to charge fees.

“To be the person to sit in a witness box saying that you’ve been responsible for changing fees to dead people has to a terrible thing and then to realise the whole world is listening,” Longstaff. “You must ask yourself, ‘How did I become that person?’ You don’t have to find villains to find misconduct; most wrongdoing is done by good people.”

Longstaff expects one focus of the royal commission’s recommendations to be empowering individuals to weigh the demands of commercial and market forces against community expectations. He uses the examples of lawyers who work within corporations where the individual who focused on the commercial outcome has a primary obligation with the courts to act in the public interest and to ensure they don’t violate certain ethical norms.

Despite the expected focus on the individual and professionalism, business structures won’t be untouched by the royal commission’s recommendations, Longstaff adds.

“Remuneration incentives is a major issue,” Longstaff says. “The fact you have a system that intends to drive people to violate certain reasonable obligations, that’s something companies need to address.”

The banning of commissions grandfathered in under previous reforms was a consideration Orr questioned during her closing remarks in April. She also questioned carve-outs for insurance commissions and the existence of ongoing service arrangements that led to the charging of fees for little or no service.

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Smith is the editor of Professional Planner’s print and digital platforms. He is an experienced financial journalist, editor and multimedia producer who has held senior editorial positions both in mainstream press and trade media.