There may be good news for investors, especially retirees and savers.
The terrible losses many incurred in the collapses like Storm Financial, Westpoint, Opes Prime and a host of other questionable failures or incompetently run listed companies may have produced a future bonus in the shape of better pricing and transparency for financial advice.
The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen, said in a statement yesterday that the changes are designed to tackle conflicts of interest that have threatened the quality of financial advice that has been provided to Australian investors, and the mis-selling of financial products that culminated in high profile corporate collapses such as Storm Financial, Opes Prime and Westpoint.
A new law will require financial advisers to put the interests of their clients ahead of their own, or be penalised.
Trailing commissions seem to have been banned for financial products, fees for advice should be clearer and simpler and all commission payments from any financial services business relating to the distribution and provision of advice for retail financial products banned.
Mr Bowen said this "measure is targeted at removing current potential for product providers to influence adviser recommendations"
"Any form of payment relating to volume or sales targets (including employee sales and volume targets) from any financial services business, relating to the distribution and provision of advice for retail financial products will also be banned.
"This measure is targeted at removing other volume-related payments which have similar conflicts to product provider set remuneration. The form of these payments also does not engender the right behaviour.
"The ban applies to all financial products, including managed investment schemes, superannuation and margin loans, but does not initially apply to risk insurance. Insurance has different features from investment products, including the fact that there are no investment funds which might be used to pay for advice."
The ‘new day’ outlined by the federal government, won’t start for more than two years, a delay that can be questioned.
But subject to a final sorting out of proposed reforms, most of the changes will start July 1, 2012.
That mean advisers can still charge commissions until then. But investors should be able to pressure their advisers to change in the knowledge of the changes to come from mid 2012.
"These reforms are the government’s response to the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into financial products and services in Australia," Mr Bowen said in the statement.
"Australia is facing the challenge of an ageing population. Access to quality advice remains an important part of planning for the future.
"These reforms will see Australian investors receive financial advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to the financial adviser.
"ASIC’s powers to act against unscrupulous operators will also be strengthened and professional standards for advisers will be reviewed by an expert advisory panel," Mr Bowen said.
Mr Bowen said the "expansion in the provision of low-cost, simple advice will be of particular benefit to individuals and families who may not currently have access to financial advice".
Furthermore, the government’s progress on simple disclosure for investors and financial literacy will better enable individuals to understand, and therefore benefit from, the advice they receive.
Mr Bowen said the contentious exemption that allows accountants to provide advice on the establishment and closing of self-managed superannuation funds (SMSFs) without holding an Australian Financial Services Licence (AFSL) will be removed.
"The Government is concerned that the current exemption does not provide an appropriate framework for advice in relation to SMSFs and superannuation more generally.
"The Government will consult with industry on an appropriate alternative to the current exemption, including a potentially a streamlined licensing regime, and there will be an appropriate transitional period."
That will please the financial advice sector and establish a level playing field.
Next, the simpler default option for superannuation that will help investors choose, without too much pain, the best option for them at the lowest cost.
In his statement, Mr Bowen said the main changes (including those mentioned above) were:
- A prospective ban on conflicted remuneration structures including commissions and volume based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans. The measure does not initially apply to risk insurance.
- The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients.
- Increasing transparency and flexibility of payments for financia
