The long awaited legislation banning financial planners from receiving commissions from recommended investment products has just been announced by Financial Services Minister, Bill Shorten. Some of the key points in the proposed new laws are –
Financial advisers must also ask their clients, every 2 years, if they wish to continue their financial relationship.
As surprising as it may sound, financial planners will be legally bound to act in the best interests of their clients.
Financial planners have also lost the opportunity to collect commissions on life insurance policies that are purchased as part of superannuation plans. Insurance commissions on other insurance policies have been allowed to continue. Insurance commissions linked to superannuation plans were estimated at $1.9 billion in 2009 by Choice Chairman Jenni Mack.
Not surprisingly, Mr. Shorten has claimed that these changes will restore credibility to the financial planning industry – an industry which has been hard hit by the global financial crisis and the failure of companies like Storm and Westpoint.
Many financial planners have been moving away from commissions and replacing them with a fee for service structure, over the last couple of years.
The claim is that these reforms will save consumers money, as they will not be paying commissions. It remains to be seen if the financial planning industry can absorb these revenue losses without having to raise fees to clients.
The proposed changes will be the subject of more consultation, prior to the release of draft legislation later this year.