In possibly the surprise of 2010, on 26 April, Financial Services, Superannuation and Corporate Law Minister Chris Bowen announced an overhaul of Australia’s financial advice sector.
The overhaul, entitled “Future of Financial Advice”, was designed to, among other things, ban conflicted fee structures including commissions and volume-based payments.
The reforms have also called for the expansion of low-cost or ‘simple advice’, the first major attempt by the government to recognise the need for affordable financial advice for all Australians.
It has also called for further powers to be given to ASIC regarding acting against “unscrupulous operators”.
Overall, the reforms have been welcomed by many industry associations.
“These measures will be the biggest reforms to the industry since the Financial Services Reform Act in 2001. We do have some concerns around the implementation of these reforms,” FPA acting chief executive Deen Sanders said.
“Some people in the industry may think that these reforms have gone too far. Consequently, there could be some serious impacts on some advice businesses. We want to make sure that the implementation will be right so that businesses will have time to adjust,” Sanders said.
While the FPA is in favour of the government’s ban on commissions, such a removal did not recognise the customer’s right to choose, according to Association of Financial Advisers (AFA) chief Richard Klipin. The AFA also has concerns about the wider powers ASIC will have under the reform measures.
The Association of Superannuation Funds of Australia (ASFA) also welcomed many of the government’s planned changes, particularly the importance of single/limited-issue, cost-effective advice in super.
“Fund members will be able to establish a relationship with their fund to gain advice at all stages of their lives,” ASFA chief executive Pauline Vamos said.
“At the moment, intra-fund advice can only be provided about the super fund’s ability to help the member contribute to, invest in or obtain insurance from the fund.
“Now, the final gap has been addressed – helping funds look after people who are moving into or already in retirement.”
On an advice level, both institutional firms National Australia Bank (NAB) and AMP Financial Services also reacted favourably to the government’s proposals.
“We welcome Minister Bowen’s proposed reform agenda, which we believe will help drive greater trust in the financial advice profession. It addresses a number of the core issues that have been holding the reputation of the industry back, including commissions and volume-based payments,” an MLC & NAB Wealth spokesperson said.
AMP Financial Services managing director Craig Meller said as an industry, there needed to be a greater awareness to ensure Australians had confidence in the quality of the advice they received and that it was delivered as efficiently and cost effectively as possible.
While it may seem surprising that tied institutions would welcome the changes, perhaps the strength of the large-scale firms will enable them to weather any reform, leaving the smaller or mid-tier firms to face the brunt of the changes.
Large scale firms – institutionally tied or not – may well have the capital to either take advantage of distribution deals with fund managers or create their own in-house products, though the removal of such different fee models may spell the end for small firms.
Let’s hope the reforms will help boost our industry and not deliver the final blows.
