The Future of Financial Advice reforms passed the Senate on 20 June 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 and will include:
- A ban on conflicted remuneration structures including commissions and volume based payments
- The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients,
- Increasing transparency and flexibility of payments for financial advice by introducing ‘adviser charging’
- 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 improve access to and affordability of financial advice.
- Strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators.
The legislation implementing the majority of the reforms, including the prospective ban on conflicted remuneration structures, adviser charging regime, and statutory best interests duty, will commence from 1 July 2012. The ban on upfront and trailing commissions and like payments for risk insurance within superannuation will apply from 1 July 2013.
Will this make a difference to the number of people who actually seek financial advice whether it is more affordable or not? Debbie thinks that people will still look negatively upon financial advice, but this is something that must be overcome for the good of their financial future.
People mistrust financial advisors, thanks largely to those few who make the headlines for squandering their clients’ future, while they themselves flourish. This mistrust is worrying. According to research published in 2010 by the Investment and Financial Services Association, there was a shortfall in superannuation of $695 billion on what is needed to live decently in retirement. And with this figure continuing to grow, there is a real need for people to take ownership of their retirement funding.
These figures mean the average savings gap is $73,000 per person, although the actual is probably much larger for most older Australians. With a full Age Pension falling woefully short ($2000 per annum) of the amount needed to live even a modest lifestyle in retirement, it’s little wonder Australians feel negative about funding their retirement.
However, all is not lost. While financial advice and planning is about more than just superannuation, a funded retirement is for what many Australians would hope. The reforms announced following the Parliamentary Joint Committee on Corporations and Financial Services’ Inquiry into financial products and services in Australia, have passed senate and should give Australians the confidence they need to seek financial advice. The projected outcome of the reforms is:
- Doubling in the provision of financial advice to Australians – by 2026 there will be 1.76 million pieces of advice provided compared to 831,000 pieces under a no reform scenario.
- Increased availability of cheaper scaled advice with the average cost of advice being halved from $2,135 to $1,188.
- An increase in superannuation and other savings by individuals under advice by an estimated $130 billion by 2026.
As well as these financial goals, the Australian Securities and Investment Commission will be granted more powers to act against unscrupulous advisors, providing greater confidence for investors. However, those looking for financial advice should still follow the recommended guidelines.
To read more about the Future of Financial Advice reforms, visit www.futureofadvice.treasury.gov.au
Will these reforms give you more confidence about visiting a financial advisor? Do you think the Government should provide free access to financial advisors?