Discussion in 'Superannuation, SMSF & Personal Insurance' started by Tropo, 3rd May, 2011.
What do these new rules mean in Non governmental english?
Changes announced by the Superannuation Minister go some way to fixing the industry.
The final version of Future of Financial Advice reforms stopped just short of delivering the knockout punch to the most conflicted components of a financial services industry that Eureka Report has been campaigning about for almost six years.
Following some intense behind-the-scenes lobbying from the big end of town, the reforms released by Assistant Treasurer Bill Shorten yesterday have been “fine-tuned” to deliver a series of concessions to retail investors and institutions, while reserving the most pain for financial advisers themselves.
While retaining its commitment to banning commissions, volume bonuses and asset-based fees on gearing, the most important new aspects of the reform package for Eureka Report readers were:
- A ban on “soft dollar” benefits valued at more than $300 that do not relate to development or administration costs from July 1, 2012.
- A ban on upfront and trailing commissions for life insurance products sold through superannuation from July 1, 2013.
- A requirement for advisers to convince their clients to “opt-in” for further advice every two years from July 1, 2012.
On the face of it, these are important victories that should contribute to an environment where Australian investors receive better financial advice, but the fact that a number of these reforms have been watered down from their original premise has not gone unnoticed.
Although advisers themselves will no longer be swayed by the large upfront commissions we saw in the case of Westpoint or the percentage-based incentives from overly geared clients of Storm Financial, the big institutions will still be able to collect volume payments (running into millions of dollars a year) from third parties such as the funds that gain access to networks of investors via platforms.
Banks too, have been spared the whip.
Shorten says employees of Authorised Deposit Taking Institutions (such as the banks) will still collect bonuses on the sale of basic banking products including savings accounts, first-home saver accounts and the like. Both these concessions play directly into the reports of intense lobbying from powerful institutions.
But we did have a win on “soft dollar payments”, which were initially excluded from the “conflicted remuneration structures” that the government first proposed banning back in April 2010. On one hand, it’s no surprise following a series of stories exposing the largesse collected by advisers by investigative reporter George Lekakis.
In our opinion, the reforms concerning the issue of soft dollar payments do not go far enough.
Although we applaud the government for tightening up on a blatant culture of showering advisers thousands of dollars in hospitality, we note that the crackdown does not extend to “administration” or “development conferences” where favoured advisers are awarded junkets.
In addition, the ludicrous situation where SMSFs paid commissions of up to 100% on insurance premiums sold but “infomediaries” is also being stamped out following a blanket ban on commissions the practice from July 2013. However, commissions will still be payable on life insurance policies purchased outside super.
For financial advisers themselves, the key reform will no doubt be the requirement for clients to “opt-in” (or renew) their advice agreement every two years. In the previous draft, the proposal was for advisers to gain this approval every 12 months.
The idea that advisers will not be able to continue charging clients unless they are not only happy with the level of advice they are receiving but engaged is a good one.
Unfortunately for the advisers themselves, this means they risk losing their client they sign up from July 1, 2012 every 24 months.
This appears to be yet another wasted opportunity because the real benefits of this reform won’t be felt for another generation because existing relationships between planners and their clients won’t change.
One the most surprising developments was the number of reforms that had been deferred or delegated to other bodies.
This included the flagged restriction of the title “financial adviser” or “financial planner” to those who met a minimum standard of (presumably) an undergraduate degree alongside the existing RG146 qualification that can be completed in eight days.
The final work on this has been passed to Treasury.
Further to this, the reforms did not produce a solution for the so called “accountants exception”, which allows accountants to provide advice on establishing and closing self-managed super funds.
It promised to remove the privilege last April. The government is still committed to finding a solution by way of a special licence and is working on the details with ASIC, Treasury and the relevant industry bodies.
While the reforms were also expected to include more detail on the strengthening of ASIC’s powers in relation to banning individuals, none was given.
Nor has any decision been made about review of the distinction of retail and wholesale clients or the simplification of Financial Services Guides.
Shorten has produced a politically astute and commercially palatable series of reforms for the industry to work with.
No doubt keen to avoid making too many enemies, he has produced a framework through which the industry can start rebuild its reputation as he makes his way to a portfolio with more visibility than he currently enjoys.
Legislation is expected be introduced into Parliament before the end of the year.
So I still have to pay trailing fees, but my FA has to covince me to remain loyal every 2 years?
Is this all the reforms that are getting pushed through by John Brogden? The ex clown politician that tried to kill himself after he had a break down after copping abuse from everyone in relation to his racist remarks towards Bob Carr's Asian wife.
I can't believe idiots like him actually have a say in anything. Weak prick he is.
A different perspective
The FOFA reforms while well intentioned are a classic example of poorly thought out policy that will not achieve its objectives due to unintended consequences.
By banning volume bonus payments the government has pandered to big business at the expense of the IFA (independent financial advice sector). The large corporates will not be impacted by these changes as they will make these payments under new guises. Consumers will get the sames biased advice from Advisers aligned with the institutions as they always have yet have less independent advice options to turn to.
Speaking as an industry insider, there are large amounts of money (hundereds of thousands per adviser) being offered around the country right now for advisers to move from or remain with their existing (institutionally owned) licensee. This money is bribe money to switch (or stay) and recommend that institution's products (not those most suited to the clients). These payments have not been withdrawn due to FOFA but are actually gearing up right now. It shows how happy these institutions are with the arrangments and their confidence that they can continue to but advisers loyalty to their products.
On the other hand the IFA market will be decimated and consumers will find it much harder even than now get advice independent of product.
The changes should happen but they should be accompanied by incentives for advisers to operate independent of product. e/g tax deductions for fees, easier access to the use of the term independent etc for those adviser who are not going to be subsidised by the four banks and other giant player.
While consumer groups (cheered on by industry funds) think this legislation is something to celebrate they may find a wolf in sheeps clothing lurks behind.
While I disagree with quite a few of Tropo's comments (with respect) he is right that the large institutions had watered down the bits that impacted on their buisness models and let the pain fall on the independent advisers.
The UK is currently reversing similar decisions it made on risk insurance. Shouldn't we learn from others' mistakes?
But as I began, the intent is good but the execution is going to be right up there with the insulation debarcle, BER scheme and now asylum seeker polices. All good theory but disasterous in outcome.
As far as we know existing investments are grandfathered and this is only for new investments from 1st July 2012.
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