Seeking financial advice without being ripped off could be a little clearer following the Federal Government’s introduction into parliament of a key recommendation of the Hayne Royal Commission into banking.
The legislation seeks to ban the grandfathering of conflicted remuneration paid to financial advisers.
As the Treasurer’s media statement said:
"Conflicted remuneration is where the payment of a benefit to a financial adviser may incentivise them to recommend to a consumer a financial product that may not be in their best interests. Grandfathered conflicted remuneration can entrench clients in older products even when newer, better and more affordable products are available on the market.”
It's a watershed moment for financial advice, as it will stop thousands of advisers from relying on these payments in their business models.
The grandfathered commissions allow some advisers to pocket what would otherwise be considered prohibited forms of "conflicted remuneration".
The concern is that the payments could incentivise advisers to recommend products against their customer's best interests.
The change would kick in at the start of 2021, with the government tasking the regulator ASIC, with monitoring how the benefits flow through to financial advice clients.
Interestingly, 2,825 financial advisers left the industry in the six months to June 2019, mainly due to the coming licensing requirements under FASEA regulations. Some advisers are also moving to independent licensees rather than institutions.
National Seniors Australia was instrumental in bringing about changes to financial advice laws to protect consumers.
This culminated in new Future of Financial Advice (FOFA) legislation to strengthen the standards governing financial advice.
Former National Seniors Australia CEO, Michael O’Neill, is a member of the Financial Adviser Standards and Ethics Authority (FASEA) Board, recognition of the strong role played by National Seniors in achieving this important reform.
You can read the Treasurer’s full media statement below.