Assistant Treasurer Bill Shorten has introduced a raft of amendments to the second tranche of the federal government's advice reforms, with particular focus on forms of remuneration.
In his second reading to the House of Representatives yesterday, Shorten reiterated the ban on conflicted remuneration by financial advisers, including commissions from product issuers, would stand under the Future of Financial Advice (FOFA) reforms.
He said the Bill also contains a number of additional measures regarding asset-based fees; volume-based shelf-space fees; and grandfathering.
In regards to shelf-space fees, Shorten said product issuers will not be allowed to purchase shelf-space on a platform menu by paying inflated fees.
"Platforms should be incentivised to put the most appropriate products on their menus, rather than lease positions to the highest bidder. Payment flows which represent reasonable value for scale will remain permissible," he said.
The amendments also restrict advisers from being able to charge asset-based fees, Shorten said.
He said under the current law, an adviser can artificially increase the size of their advice fees by 'gearing up' their clients.
"While most planners advise their clients responsibly in this regard, such a fee model does not engender the right behaviour and is prohibited under the Bill," he said.
"I should emphasise that there is nothing to prevent advisers under this measure from recommending a gearing or borrowing strategy to their client."
Shorten said while the remuneration measures are important, they represent a large change to the industry and to individual businesses.
He said it is for this reason that existing trail commission books will be grandfathered, meaning commissions from business entered into prior to the reforms can continue.
"Of course, commissions on new business and clients after 1 July 2012 will not be allowed," he said.
"This is a just outcome, and provides an adequate cushion for the industry to transition once the new laws are in place."
Shorten said it is crucial to the "integrity of the advice industry, or any industry involving a high degree of trust and responsibility, that the consumer can be confident that the adviser is working for them".
He said as a result of the Bill, for the most part, advisers will not be able to receive remuneration which could "reasonably be expected to influence" financial advice provided to a retail client.
"If an adviser is confident that a particular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income," he said.
"I should note that despite this necessary and overdue measure to eradicate conflicted remuneration, I am encouraged to see that a very large proportion of the industry is already moving away from product commissions and moving to a fee-for-service model," he said.
"This is not only better for the client, but it is also best professional practice."
"Many professional advisers working under a full fee-for-service model, who have already turned-off their trail commissions, will not be impacted by these reforms, except that there will now be a level playing field in the industry as far as legitimate remuneration sources is concerned."
Shorten said increased transparency of fees will also assist consumers in comparing different advice costs, thereby enabling greater competition across the sector.
Shorten said the measures in this Bill support the "key public policy objectives of FOFA" to improve consumer trust and confidence in the financial advice they receive, and improve professional standards.
