Financial planners will have to comply with a two-year opt-in while commissions on risk insurance both within group and individual superannuation will be banned from 1 July, 2013.
There will also be a ban on volume-related bonuses and rebates.
Those are three of the key elements to the Future of Financial Advice reforms announced by the Assistant Treasurer and Minister for Finance, Bill Shorten.
The two-year opt-in will be introduced from July next year and will be supplemented by an annual disclosure notice.
Where volume bonuses are concerned, the Government said there would “be a broad comprehensive ban, involving a prohibition of any form of payment relating to volume or sales targets from any financial services business to dealer groups, authorised representatives or advisers”.
While possibly reluctantly accommodating the two-year opt-in, the financial planning and insurance industries are expected to lobby hard for the Government to rethink the banning of commissions on risk products, particularly those which fall outside of superannuation.
Announcing the FOFA changes, Shorten said the reforms were designed to provide further protections for consumers of financial advice and to “restore trust in the system following the collapse of Storm, Trio, Westpoint and other financial service providers”.
“It will also provide more certainty to the financial advice profession, which has been closely engaged in the consultation process,” the minister said.
“The vast majority of financial advisers are dedicated professionals who give good advice to the best of their ability. But that doesn’t change the fact that many consumers lack trust in the profession and there is a perception that advice is under-regulated and open to abuse.”
The Government’s announcement has received a frosty welcome from the industry, with Association of Financial Advisers chief executive Richard Klipin describing the decision on risk commissions as misguided and unacceptable.
“The best that can be said about this package is it represents an end to the phony war,” he said.
AMP Financial Services was similarly critical with managing director Craig Meller saying the Government’s proposal to ban commissions on life insurance paid for within superannuation, including income protection and disability cover, “goes too far and it is not clear what problem is being addressed”.
“The proposal to ban commissions on life insurance within superannuation is ineffective public policy because it will inevitably exacerbate Australians’ chronic level of underinsurance.”
