The question remains: after many years of debate and various government reviews on the issue, how close are we to getting the reforms that are so badly needed? While the Federal Government will make commissions illegal from July next year, banning commissions is only the first round in the battle to protect consumers from receiving conflicted financial advice, and paying too much for it. The move to reform financial advice in Australia started in earnest with Nick Sherry when he was appointed as the country’s first minister for superannuation and financial services. Since then, another two ministers – Chris Bowen and now, Bill Shorten – have taken up the cause.
The focus has now shifted from commissions to some of the lesser known ways that members end up paying advisers and major financial institutions. A second batch of reforms that addresses these issues – the so-called Future of Financial Advice (FoFA) reforms – is scheduled to be debated in Parliament later this year. But not before they are hotly debated elsewhere. Make no mistake: the lobbying to remove or water-down some of the key FoFA recommendations is well-underway. The FoFA proposal for an ‘opt-in’ provision is particularly controversial. It stipulates that clients of financial planners must actively agree each year to continue paying for ongoing advice. For those of us whose job it is to protect the interests of super fund members, the opt-in provision makes perfect sense, in the same way that banning commissions is a no-brainer. There are just too many cases of consumers paying for advice they don’t actually need.
With an opt-in provision there is nothing stopping anyone from receiving frequent advice: they just have to actively agree to it and then re-confirm on an annual basis that they still want advice. The move to ban volume rebates is necessary and overdue. Unfortunately, the current structure of these rebates – which are meant to offer clients the benefits of economies of scale by pooling their money – creates a conflict of interest. If an adviser receives a large rebate for putting a client in a particular investment through a particular platform, then the potential will always exist for that adviser to provide biased advice. Arguably, volume rebates are simply commissions by another name. There is no doubt that as superannuation balances grow and our population ages, more consumers will need financial advice.