The Government has issued the Future of Financial Advice reforms package for consultation.

The Future of Financial Advice package includes the following:

• A prospective ban on conflicted remuneration structures including commissions and volume based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans. The measure does not initially apply to risk insurance.
• The introduction of a statutory fiduciary duty of financial advisers to act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients.
• Advisers will only be able to charge ongoing advice fees if a payment plan has been agreed with the client, or if the charge relates to the provision of an ongoing service. If an adviser is to provide an ongoing service, the adviser must send an annual renewal notice to the client. If the client does not renew the services, the adviser cannot continue to charge the client.
• Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor.
• Strengthening the powers of the Australian Securities and Investments Commission (ASIC) to act against unscrupulous operators.
• removes of accountants’ licensing exemption in relation to self-managed superannuation funds
• The examination of a statutory compensation scheme.

The proposals include a ban on:

• Initial/upfront commission and trail commission. There must be separate fees for the product and advice.
• Any form of payment relating to volume or sales targets (including employee sales and volume targets) from any financial services business, relating to the distribution and provision of advice for retail financial products.

The ban does not initially apply to soft dollar benefits. The newly established expert advisory panel, in relation to its review of ethical standards, will consider whether these payments are consistent with those standards. Treasury will advise Government to the best way of extending the ban on conflicted remuneration structures to material soft dollar payments.

The majority of these reforms will commence from 1 July 2012.