In the shadow of the GFC and in response to the recommendations
made by a parliamentary Joint Committee on Financial Services, the
Federal Government has proposed wide-reaching reforms to the
financial services sector. The proposed reforms outline measures to
improve financial planning advice in light of the failures of
significant companies which destroyed the savings of ordinary
The key elements of the proposed reform package include:
a ban on remuneration structures, including commissions and
payment based on sales volumes
percentage-based fees charged only on ungeared products and
only if the investor agrees
more transparent and flexible methods for paying advisers
an inquiry into a statutory compensation scheme for cheated
more powers for ASIC to act against unscrupulous operators
financial advisers will have a duty to act in the best interest
of clients and without conflicts of interest
accountants will no longer be able to advise on setting up DIY
a review of the current method of classifying unsophisticated
and sophisticated investors (retail and wholesale clients)
simpler disclosure of advisory services provided to consumers,
an expert advisory panel to review professional standards for
One of the most significant reforms proposed is the imposition
of a fiduciary duty on financial advisers. The duty indicates the
existence of a special relationship between an adviser and their
client, comparable to the relationship between a lawyer and client.
While the existence of a fiduciary duty will transcend all aspects
of the relationship between adviser and client, advisers will have
to be particularly mindful of the duty as regards remuneration
– a key aspect of an adviser's fiduciary duty is
that they are prohibited from benefiting from their relationship
with a client without the client's informed consent.
Reinforcing the adviser's fiduciary duty on their
remuneration are reforms directly targeting the issue. The proposed
reforms ban certain remuneration structures, including sales
commissions, but introduce percentage based fees as an alternative.
Fees can be charged as a percentage of the client's assets
but borrowed investment capital will be excluded from this
calculation. This is a move designed to stop the mis-selling of
To police the reforms, further powers and resources are proposed
to be granted to ASIC to act against financial advisers, establish
a professional standards board and establish an expert review into
a statutory compensation scheme.
Most of the proposed reforms will commence on 1 July 2012.
Further reforms may follow as the Minister for Financial
Services, Superannuation and Corporate Law, Chris Bowen, has asked
the convener of the Corporations and Markets Advisory Committee,
Richard St John, to examine a statutory compensation scheme.
Despite the positive signs, including the recovery of employment in
financial services to levels higher than that seen prior to the
global financial crisis, the clean up continues.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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