SUBJECTS: Rudd Government's Future of Financial Advice reforms
ASHLEIGH GILLON:
Well we all remember the collapse of Storm Financial and after that the Government said 'enough is enough' and then it was going to overhaul the financial industry. Now it has come up with some ways of doing that. This morning, joining us on the line, is the Minister for Human Services, Financial Services, Superannuation and Corporate Law, Chris Bowen.
Chris Bowen can you talk us through some of the details of these changes. What will the changes mean for the typical Mum and dad investor?
CHRIS BOWEN:
Well, the key change has been the banning of commissions and payments from financial providers to financial advisers. At the moment, financial product providers can pay commissions to financial advisers to encourage them to recommend their products, whether or not it is suitable for individuals. We will abolish that, ban that under the legislation. Secondly, we will require under the law, for financial advisers to act in the best interests of their clients. Most people would think that this already the case; it is not. We will put in a fiduciary duty to act in the best interests of clients.
GILLON:
So acting in the best interests of clients. How exactly do you judge that? What penalties will be in place for financial advisers who don't take these new rules seriously?
BOWEN:
Well, of course, ASIC will be enforcing this and there will bevery substantial enforcement of it and the courts will be able to take action. It's important that that duty exist, so ASIC has those powers. Also, ASIC will have the power to remove financial advisers who they feel may not be complying with their obligations to their clients.
GILLON:
And in particular what products will you be talking about when you say commissions will be banned on 'certain products'. Are you talking superannuation here?
BOWEN:
This is across the board, so this is financial products across the board. So this is superannuation, managed investment schemes, everything accept insurance, and we will consult further about how that applies to insurance, because that is a complex area.
GILLON:
The Opposition and some industry groups have been warning that this change could make services more expensive for consumers; particularly low income earners may not be able to afford these services anymore, because there could be a move to upfront fees. Is that one of the concerns you share?
BOWEN:
Well, of course, people already pay for their financial advice but they may not know how they are paying. They are paying through a reduced retirement income. They are paying through their superannuation fund and other investments making payments to financial advisers, and therefore their retirement income is being reduced.
These reforms will mean that people will have it much clearer, about what advice they are paying for. But of course, advice is expensive now, and people might be paying for it in a way that they are not aware of. This makes it much more transparent and clear and people can make choices based upon what is in their best interests.