The Future of Financial Advice – Government Reforms

by John Tutt on April 27, 2010

The government has announced significant reforms in the area of financial advice in an effort to “improve the quality of advice, strengthen investor protection and underpin confidence and trust in the financial planning industry.”* The three main reforms which apply from July 2012 are

A ban on commissions and any other form of volume payments. Some advisers won’t charge you a fee for their service but will be remunerated by a product provider for sending them the business.
The introduction of a statutory fiduciary duty requiring advisers to act in the best interests of their clients. If they are not already doing this, you are seriously in the wrong place.
The introduction of an adviser charging regime. There will be a number of flexible options to pay for advice. Clients will need to agree to pay their adviser’s ongoing fees by opting in annually.

I believe these reforms are both welcome and overdue and they should no effect on advisers already doing the right thing. There will howver be some advisers who are nervous about these reforms as they may have a significant impact on the way they generate their remuneration. These are exactly the type of advisers that we need to weed out of the profession.

These reforms will have no effect on my business or clients because:

I charge my clients on a fee for service model. It doesn’t matter what stocks, managed funds or other investment you are invested in, you are charged based on the time taken to provide and implement the strategic advice. On the rare occasion that a fund manager provides me with a commission or rebate, it is passed on to the client.
If your adviser is not already acting in your best interests, you need to run away – fast. When Westpoint were spruiking their product through financial advisers, they were offering 10% upfront commissions on sales to those advisers. Agricultural investments also generally offer large incentives to advisers. This is not to say you should disregard them completely, just be aware of the commissions offered and that they are not an appropriate investment for everyone. As my existing clients will testify, none of them were in Westpoint or Fincorp or any other capital guaranteed investment that went belly-up. And none of them have any Managed Investment Schemes growing trees, alpacas or olive groves.
My ongoing fees are based on the level of service that you agree to. If you don’t require any ongoing service, you don’t pay any fees. That’s just common sense to me.

Any reforms that promote transparency, investor confidence and the quality of advice are to be applauded. If your current adviser is looking increasingly nervous or if you would just like to contact me for an obligation free consultation, please click here and I will respond to your request within 24 hours.

*The Future of Financial Advice, Information Pack, Moday 26 April, 2010.

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