The Government’s response to the Ripoll and Cooper inquiries will be guided by two overriding principles, according to the Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen.
Bowen told the Financial Planning Association of Australia’s 2009 National Conference that financial advice must be in the best interests of consumers, and that any “remuneration distortions” that produce real or perceived conflicts of interest must be minimised; and that financial planning must be available to everyone who needs it.
Bowen says the Government’s response to the recommendations of all inquiries will assessed in light of these two basic principles.
“We are not out to get financial advisers,” Bowen says.
“I recognise that financial advice can play a valuable role in assisting people in planning their future.
“I believe as many Australians as possible should have access to financial advice. But a necessary precondition is that that advice has to be of a high quality.
“From my perspective, any regulatory changes to the industry will be guided by two overriding principles: The first one, that financial advice that people get must be in their best interest. Distortions to remuneration which misalign the best interest of the client and advisers should be minimised.
"And secondly, in minimising these distortions we need to make sure we don’t put financial advice out of the reach of those who would benefit from it.
“The Parliamentary Joint Committee on Corporations and Financial Services (PJC) is looking into some of the reasons
“We’ll be working through the recommendations of both the Ripoll and Cooper reviews, and judging their recommendations against those two policy principles – ensuring that advice is in the client’s best interest, and not discouraging people from getting that financial advice.
“I know the PJC has been looking closely at current remunerations structures, such as fees and commissions, and the best ways to ensure proper consumer protection without stifling the industry.
“We’ll be looking at the PJC inquiry recommendations and considering them in light of the recommendations of the Cooper and Henry reviews as well.”
Bowen said that regardless of whether commissions create genuine conflicts of interest, “they can do, they invariably create an overwhelming perception of conflict – a perception that financial advice may not be in the best interest of the client”.
“Commissions paid to financial advisers do have the potential to create real, potential or perceived conflicts of interest,” he said.
“Such a perception justifiably puts doubts in the minds of many consumers, ultimately to the detriment of the industry.
“Even if you don’t agree that commissions create a conflict of interest, I hope that you will agree that we need to deal with the perception of conflicts if we are to promote confidence in the financial advice industry.
“The move away from commissions will improve transparency for consumers, and help to ensure that clients receive advice that is free from conflict of interest, whether real or perceived.
“Crucially, it will also boost the longer-term image of the financial planning industry.”
Bowen says getting the structure of the financial planning industry right would open potential export markets, based on “high levels of professionalism and technological advances”.
He added: “The realisation of such opportunities is dependent on the strong reputation and integrity of Australia’s financial advisory sector.”
Bowen said a “fundamental goal” of industry reform must be to restore public rust in the financial planning profession.
“Recent controversies have dented confidence in the profession, both here and overseas,” he said.
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