Maybe the 10 years of lobbying for changes in the financial planning industry is now starting to pay off.

A new law is required to ensure that “Financial Planners” put their clients interests ahead of their own. It’s sad that a law is required for this to occur, however it should start an improvement in an industry I’m not a fan of.

Jamie McIntyre
CEO 21st Century Education

Here’s the story:

Financial Advisers to Lose Commissions

No more kickbacks: The Government says legislation cracking down on financial planners will make the industry more professional. (ABC News: Gary Rivett)

New laws will soon come into force which ban financial planners from receiving commissions and benefits which may cause a conflict of interest.

The Corporations Act will also be amended so financial advisers are required by law to put the interests of their clients first.

Financial Services Minister Chris Bowen says he is not attacking the financial services industry, he is just making it more professional.

“Thousands of Australians have their life savings wiped out by inappropriate financial advice,” he said.

“They have a right to be angry and we have an obligation to act.”

The announcement is the Government’s response to a parliamentary inquiry into the financial products and services sector, which began after the collapse of Storm Financial and Opes Prime.

Labor backbencher Bernie Ripoll delivered his report last year.

Mr Bowen will announce the changes today, including a legislated ban on financial advisers receiving commissions – a much tougher measure than the Ripoll report recommended.

“By installing a legislative ban, we ensure that no operator in the future can get around conflicts of interest,” he said.

“It’s important that we have a very clear set of rules and those rules are that it is illegal for a financial adviser to pay commissions to recommend their products.

“Customers and clients when they’re seeing a financial planner deserve to know that a financial planner is acting in their best interest and when you have commissions that is simply impossible.”

Mr Bowen says a substantial proportion of financial planners’ income comes from commissions, but they will adjust.

“The legislation will take a significant amount of drafting,” he said.

“We will endeavour to get the legislation through the parliament this year but of course there’ll be an election later in the year, but certainly the first of July 2012 is the start date for the new regime.”

The Federal Opposition’s spokesman, Luke Hartsuyker, says the proposed changes could disadvantage low income earners because it would mean higher upfront fees for financial advice.

“All commissions should be properly disclosed to that client. The opposition has no problem with that,” he said.

“But the key issue here is if an individual wants to purchase advice and pay for that advice via commissions, rather than having to pay substantial upfront fees, they are prevented from doing so.”

The Government will also give the Australian Securities and Investments Commission more power to act against unscrupulous operators.

Mr Bowen says he is also trying to expand the availability of low cost financial advice so more Australians have access to it.

He will not say whether it will be tax deductable as recommended by the committee.

“That will be considered in light of the Ken Henry review, and of course that’s being released next Sunday,” he said.

“I’ve made it very clear to the financial planning industry that it would be very expensive and therefore difficult to justify.”

Mr Bowen would not guarantee that no taxpayer would be worse off following the release of the Henry tax review, but said there would be a substantial government response when it was released.

(Source: ABC News: Gary Rivett)