Anyone who read a newspaper yesterday could not have missed the headlines - Tough rules for finance advisers, A better deal for investors, Commission ban to shake up financial planning. It would be easy to jump to the conclusion that the only stakeholder to lose out in the changes announced by Minister Bowen were financial planners.
I can say categorically that there are numerous financial advisers who are very happy with the steps taken by the federal government commencing July 2012, me being one of them. The banning of commissions removes another potential black mark held against the financial advice industry - the perception that advisers are here to "flog" financial products rather than provide independent advice relating to the specific needs of each individual client. That said, I think there are many advisers who actually use a commission based payment model that do act in client best interests but as long as they are paid directly by the product provider this independence is put into question. With this change there can now be much less doubt about this.
The change I also like is the removal of asset based fees on geared investments. This targets the strategy where an adviser will recommend a client borrow money to invest in the market and not only take a percentage fee on the initial investment but also on the loaned funds. The conflict of interest here is pretty clear and has now been removed somewhat by these proposed changes.
One concern with the planned change is that advisers will now resort to charging fees at a much higher level compared to the commissions they were receiving and in doing so block access to good financial advice for those with smaller amounts of income and assets. Time will tell whether this is actually the case but I can assure you that there will be many firms, like A Clear Direction, working hard to create financial advice solutions for interested parties across the spectrum of wealth accumulators to retirees and high net wealth investors.
We at A Clear Direction are excited about the planned changes to the financial advice industry and believe we are already well placed for these changes as we do not accept commissions. (NB We are required to receive commissions from some cash investments used by clients but rebate these back in full to clients each quarter.)
Bring on July 2012!