Australia announced sweeping changes to the financial planning industry yesterday, including the banning of commissions for advisers, in the wake of several high-profile corporate collapses.
Under the new rules, financial advisers would be legally required to put the interests of their clients first, Australian Financial Services Minister Chris Bowen said.
“Customers and clients, when they’re seeing a financial planner, deserve to know that a financial planner is acting in their best interest and when you have commissions that is simply impossible,” he said.
Bowen said the changes were designed to improve the quality of financial advice and tackle the sale of inappropriate financial products that culminated in the collapse of firms such as Storm Financial, Opes Prime and Westpoint.
“Over the years, thousands of Australians have had their life savings wiped out by inappropriate financial advice,” he told reporters. “They have a right to be angry and we have an obligation to act.”
Thousands of investors lost their savings in Storm Financial’s A$3 billion (US$2.78 billion) collapse in late 2008, while Opes Prime fell apart in March 2008 owing clients and creditors some A$630 million. Westpoint, which began to unravel in late 2005, collapsed with thousands of investors losing some A$388 million.
“Some of the collapses we have seen ... have been because of poor business models ... but [these products] have been recommended by financial planners because they have provided very substantial commissions,” Bowen said. “In some cases up to 12 percent of the investment... clearly that has distorted the advice given.”
If passed, the legislation would take effect on July 1, 2012.
The opposition said it would oppose the changes because they could prevent people on low incomes from accessing financial advice because they may not be able to pay for it up front.
The powers of the Australian Securities and Investments Commission would also be strengthened.
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