Industry Super Network (ISN) today welcomed the Federal Government announcement that it would reform Australia’s financial planning industry in line with best practice public policy and consistent with international financial services sector reform.
The reforms will increase individual and national savings and increase demand for financial advice.
The proposals to ban commissions and introduce a requirement that financial planners act in the best interests of their clients are consistent with the approach being taken in the UK and USA.
ISN CEO David Whiteley said today that the proposal that financial planners send a renewal notice to clients annually, and that consumer’s ‘opt in’ to financial planning services on an annual basis is a groundbreaking approach. It is designed to address inertia and disengagement among super members. These proposals are consistent with those of the Cooper Review "MySuper."
"There are four million Australians currently paying for financial advice they do not receive. These reforms will fix that problem."
"ISN research last year quantified that Australia loses $13 million dollars a day, because of our conflicted commission based remuneration structure. These reforms will fix that too."
"ISN research over the last 18 months has shown how the current system takes advantage of peoples’ inertia and disengagement from their super. These reforms address that."
Mr. Whiteley said that Government proposals to ‘grandfather’ existing arrangements for a few years will allow the financial planning industry to transition to the regulatory requirements and were a practical approach to reform.
"Australian consumers will be the winners from this move to comprehensively disaggregate sales and advice once and for all. A robust ‘best interest’ test for financial planners will liberate that industry and elevate it to a true profession. Consumers will be able to seek advice confident it will be in their best interests and not biased by commissions and other kickbacks paid to financial planners."
Data by independent ratings agency Rainmaker commissioned by ISN and released last week showed that in 2009 $1.3 billion was redirected via commissions from national retirement savings to financial planners, including $550 million from compulsory (SG) super.
The Rainmaker report also found that $6.48 billion has been paid in commissions to financial planners over the past four years and that $2.25 billion has been paid in commission on workers compulsory contributions over the same period.
Recent polling by Newspoll for ISN has shown that 75% of Australians want the Government to step in and regulate financial planners. 56% would more likely to seek advice following reforms proposed by Minister Chris Bowen today.
A March 2010 report Rice Warner Actuaries (commissioned by ISN) estimated that if the reforms now proposed by the government were introduced:
The number of people receiving financial advice would increase by almost 125 per cent by 2024. 900,000 more pieces of advice will be provided in 2024 if reform is implemented.
The number of low to middle income earners receiving financial advice will increase dramatically. National savings would increase, with total investment business anticipated to be $117 billion higher by 2024 (in future dollars).
The additional savings are driven by the lower cost of obtaining advice and the increased savings following a higher take-up of advice; Average financial planner revenue would increase from $169,000 in 2009 to $363,000 by 2024 (in future dollars);
and Increased efficiency would be achieved by financial planning groups through increased economies of scale, automation and innovation.
Mr Whiteley also welcomed the extension of ‘simple advice’ to improve the access and affordability of financial advice. ISN has been a strong advocate of ‘simple advice’ provided by super funds.
"These reforms are good public policy. They align the financial planning industry with the needs of a compulsory super system. They are consistent with the policy position advocated by Industry Super Network and the industry super movement in recent years", said Mr Whiteley.