Financial advisers' super slice to get axe
PETER MARTIN
April 26, 2010
Financial planners will have to earn their keep openly from their customers as part of sweeping changes that will outlaw kickbacks and commissions and revolutionise superannuation from 2012.
Fiercely resisted by parts of the industry, the changes go further than recommended by the Senate inquiry set up in the wake of the collapse of the Storm financial group, which cost thousands of people their life savings.
That inquiry recommended in November that the government merely ''consult with and support industry'' to find a way of ending payments by superannuation fund managers to financial advisers.
Instead Minister Chris Bowen will legislate to ban the payment of all types of commissions on all investments other than insurance from July 2012.
The legislation will also require financial planners to ''place clients' interests ahead of their own'' - which they are not currently obliged to do.
''The reforms will give Australians advice that is in their best interests, rather than the result of incentives or commissions,'' said Mr Bowen.
Crucially the new law will not only ban the payment of upfront commissions, sometimes worth 1 to 2 per cent of the sum invested, but also the hidden but more significant ''trailing commissions'' worth 0.55 to 0.60 per cent of the funds under management for each year that it stays invested. On a $200,000 investment these can cost $1200 per year, or more than $24,000 over 20 years, whether or not continuing advice is received.
The financial research firm Rainmaker estimates that Australians pay more than $1 billion in ongoing commissions per year.
''This will end the kickbacks and commissions and inertia payments that four million Australians have endured for decades,'' Industry Super Network head David Whiteley said. ''It'll make the commercial funds more like our industry funds.''
The Coalition has indicated it will oppose such reforms. Treasury spokesman Joe Hockey gave the industry a commitment in November that ''the Liberal Party will not support the banning of commissions''.
The changes will apply only prospectively, meaning that Australians in existing superannuation funds will continue to pay ongoing commissions for as long as they remain in those funds, giving the industry time to adjust. However changes to the operation of so-called default funds are likely to outlaw the payment of trailing commissions for 80 per cent of fund members in any case.
To soften the blow of upfront charging by financial advisers, the minister has hinted the government will make such charges tax deductible when it responds to the Henry Review. The concession would cost $1 billion. Mr Bowen said the government would reveal its position on tax deductibility when it responds to the Henry review next Sunday.
http://www.theage.com.au/business/financial-advisers-super-slice-to-get-axe-20100425-tlod.html
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