Minister for Financial Services, Superannuation and Corporate Law
9 June 2009 - 14 September 2010
Interview with Marius Benson
ABC News Radio
Monday, 26 April 2010
SUBJECTS: Rudd Government's Future of Financial Advice reforms
Chris Bowen, the central plank of the changes you're introducing in the financial industry perhaps, is the banning of commissions; now in doing that, you're going further even, than your own committee recommended.
Well, the Parliamentary Joint Committee actually made a unanimous recommendation that the industry should move away from commissions and left it open to the Government and the industry to talk about the best way of doing that.
We've taken a view that the only clear and transparent and certain way, is a legislative ban. ASIC has found, in the past, that poor advice is six times more likely when you have commissions and associated payments; and Australians have no certainty under the current arrangements, that when they go to a financial adviser that financial adviser is giving them advice on their best interests not on commissions and payments. And if we want to improve the quality of Australia's financial planning industry, this is really the best way to do it.
Okay, so commissions are going to be banned but this legislation doesn't come in for quite a while: July 2012?
Yes. It's important to let the industry have time to adjust. This is a very significant change and there'll be significant changes to systems. Also, we'll need to get these changes through the Parliament and it being now April, and the number of sitting-weeks left with an election likely later in the year, makes passing it through the Parliament this year potentially difficult; especially given the Opposition have indicated some opposition. Also I'd make the point that these changes are coming in six months earlier than very similar changes being brought in in the United Kingdom. So I think we've got the balance right, in terms of the timing of these changes.
Now there are commissions and commissions in this industry. There are commissions paid at the time that a deal is done, but there are also trailing-commissions; these are continuing annual payments for the term of the funds being managed. What happens to those people who are now paying trailing commissions; are they just locked in to the deal they've got?
Well, trail commissions will be abolished from the 1st of July 2012. For those arrangements already in place, this legislation is not retrospective – that would create huge disruption for the industry and would also arguably be unconstitutional – so the only way forward is prospective legislation. Of course if clients now being more aware of the issues here choose to renegotiate their arrangements with their financial adviser that is always open to them.
But if you're stuck with a trailing commission now, it's likely - under the law - you're continue to be stuck with it?
Well, it's very difficult to try and unscramble the egg. These have been the laws in Australia for a long time; the best thing we can do is fix it going forward.
A mixed response from people in the industry. The commercial Association of Financial Advisers, which represents 1,500 advisers around the country, has got a mixed response itself; but it says in part it's a 'nanny state' gesture.
I don't agree with that. I had a good chat with the President of that organisation yesterday; he could see the positive points of what we were doing. I respect their position but I don't think it's 'nanny state'; I think it's bringing in transparency and bringing in a very clear realignment of the incentives between financial advisers and their clients.
When thousands of people had their lifesavings wiped out due to inappropriate financial advice, we have an obligation to act.
Now there also in reports this morning, the suggestion that in prospect now, that you will make payment of charges to financial advisers tax-deductible. Is that a sort of quid pro quo for these tough measures: 'but you'll like this fellas'?
No, that's not right; and the recommendations of the PJC [Parliamentary Joint Committee] was that this issue be referred to the Henry Report. Of course all taxation matters are being dealt with by the Henry Report which is being released next Sunday. I would make the point that financial advice deductibility would be very expensive and I've made the point to industry that that very high expense to the taxpayer, would be difficult to justify.
So that's not going to happen?
Well I'm not holding out any false hope for the industry and that is not part of this package.
Chris Bowen, thank you very much.
Very good. Thanks Marius.