Hayne to have ‘negative impact’ on advice industry: Morningstar

In a research note on ASX-listed fund manager Perpetual Limited, Morningstar analyst Chanaka Gunasekera explained how the reputation of financial advisers will impact the group and the industry in general.

“Perpetual Private has not faced any direct fallout from the royal commission, but we expect the egregious level of misconduct by financial advisers revealed by the royal commission will have a negative impact on the reputation of financial advisers more generally,” he said.

Two of the biggest issues to be unearthed by the Hayne inquiry over 2018 were fees for no service and the sale of life insurance to dead people. Conflicts of interest within wealth management were also highlighted, resulting in APRA taking action against IOOF and its senior leaders late last year.

IOOF managing director Christopher Kelaher and chairman George Venardos consequently agreed to step aside from their respective positions three days after APRA’s announcement.

Shine Lawyers has now taken a stance against IOOF and revealed it is currently proposing a claim against the company.

The law firm said it has undertaken a year-long investigation into alleged corporate misconduct within IOOF, with backing from ICP and Litigation Lending. The proposed claim will be subject to the finalisation of that investigation, as well as interest from IOOF shareholders.

Morningstar’s Mr Gunasekera said that “several” class action lawyers are now indicating an interest in commending proceedings.

“At this early stage, estimating the cost of a class action has a high degree of uncertainty. As a reference point, a few years ago QBE Insurance settled a class action for about $132.5 million and we have forecasts likely class actions costs to IOOF of $150 million spread over fiscal 2020 and 2021,” he said.

Morningstar also expects ASIC to investigate the company over potential breaches of directors’ duties and the FOFA legislations.

The analyst has forecasted costs of around $50 million over the next two fiscal years.

“Notably, this is significantly higher than the maximum exposure to the royal commission recently guided to by the company, which in current circumstances, we expect is overly optimistic,” Mr Gunasekera said.

The wealth management industry must now wait for the royal commission’s final report, which is due to be released next month.