Industry Super Network (ISN) has welcomed news that the UK government regulator, the Financial Services Authority (FSA) has banned commissions on financial advice in Britain.
The sweeping changes made by the FSA represent a global trend to remove conflicts of interest and bias from financial advice. The Obama Administration is understood to be seriously considering a similar ban and ISN today called on the Australian Government to also commit to what is becoming international financial services best practice.
“It’s time for there to be a best interests test in the Corporations Act, backed up by transparent regulations around the types of remuneration for the advice industry that are compatible with this obligation,” said David Whiteley, CEO of ISN.
“This will disaggregate product sales and advice and ensure that Australian consumers get financial advice that is in their best interests, not in the best interests of their financial planner.”
“If it’s good enough for the British consumer, it’s good enough for the Australian consumer. Australia risks falling behind international financial services best practice if the current unsustainable system, which consumer advocates Choice have described as ‘structural corruption,’ continues.”
“The commission system has cost Australia enough already.”
The British regulator has banned financial advice firms from accepting any commission or financial incentive when providing financial advice from the end of 2012 and bans product providers from offering commissions. In order to ensure that the advice is delivered in the client's best interests, firms will be required to provide very clear, upfront disclosure of what they charge for their services.
Under the new rules, planning firms will no longer be able to use a charging structure that conceals the amount a client is actually paying for advice. Where it is in the client's interests, the cost of the advice can be deducted from their investment in the product.
The FSA's new rules will also means that firms which hold themselves out as offering independent advice will have to base their recommendations on a 'comprehensive and unbiased analysis' of all products in the market to ensure that they are choosing products which are in their client's interests.