Financial planning commisions banned by Federal Government
NIBA expects to take an active role in consultations with the Federal Government about commissions paid to insurance brokers, following the proposed banning of commissions for financial planners.
On 26 April, the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, announced Future of Financial Advice reforms designed to tackle conflicts of interest that have threatened the quality of financial advice provided to Australian investors. The reforms follow the
high profile corporate collapses such as Storm Financial, Opes Prime, and Westpoint.
NIBA is pleased that – initially at least – the changes will not apply to risk insurance.
Mr Bowen stated that: “Insurance has different features from investment products, including the fact that there are no investment funds which might be used to pay for advice. Therefore, concerns about affordability and the potential for under-insurance need to be explored in this context. There will be further consultation about whether to extend the ban to risk insurance (including group insurance).”
The reforms include:
- 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 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 financial advice by introducing 'adviser charging' that will help align the interests of the financial adviser and the client; is clear and product neutral; and where the investor will be able to opt in to the advice in response to a compulsory, annual renewal notice.
- Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor.
- Expanding the availability of low-cost 'simple advice' to provide access to and affordability of financial advice.
- Strengthening the powers of the Australian Securities and Investments Commission (ASIC) to act against unscrupulous operators.
- The examination of a statutory compensation scheme by Richard St John, who has significant corporate law experience.
The majority of these reforms will commence from 1 July 2012 and the Federal Government will consult with industry on the implementation of the reforms.
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