CANBERRA—The federal government has moved to restore trust in the financial services industry and protect life savings, by banning kickbacks for financial planners.
Financial Services Minister Chris Bowen on Monday released the government's response to a parliamentary inquiry into Australian financial products and services.
It was set up in the wake of the Storm Financial and Opes Prime collapses.
The package contains three key changes: financial planners will no longer be able to receive commissions; they'll be legally required to act in the best interest of clients and affordable financial advice services will be expanded.
Mr Bowen said the Future of Financial Advice reforms would tackle conflicts of interest that threaten quality advice.
"Commissions ... distort the market and need to go," he told reporters in Sydney.
"Over the years thousands of Australians have had their life savings wiped out through inappropriate financial advice.
"They have a right to be angry and we have an obligation to act."
Some collapses were due to poor business models, recommended by financial planners because they provided commissions of up to 12 per cent, Mr Bowen said.
He accepted some financial planners would leave the industry due to the changes, but denied fees would skyrocket as a result.
"Some people used to the old ways, used to the commissions ... won't be comfortable but others will be encouraged by the fact there is more transparency in the industry," he said.
He predicted financial advice would become more popular with more fee options available, but the opposition says low-income earners will be disadvantaged, as they won't be able to afford upfront fees.
Opposition Leader Tony Abbott said small business could also be hurt.
"It would be wrong to entirely scrap commissions," he told reporters in Sydney.
"If the commissions are up-front and transparent I don't necessarily have a problem with that."
Australian Greens leader Bob Brown backed the changes, but shared the concern that low-income earners would be discouraged from seeking professional advice.
"Financial planning is an increasingly popular service and consumers need to be confident that the advice they are receiving is in their best interests," Senator Brown said.
Investment and Financial Services Association (IFSA) chief John Brogden said the changes were a win for consumers.
"While investors must take responsibility for informed investment decisions, the regulatory structure must support the provision of appropriate financial advice in the best interests of the client," he said.
IFSA wants the government to go further, and make financial advice tax deductible, so it is accessible to everyone.
But it's unlikely to happen, with Mr Bowen saying it would be too expensive.
The Australian Workers Union estimates union members stand to gain $50,000 in their retirement funds under the new rules.
The union says financial planners pocketed $1.3 billion of workers' money from for-profit superannuation funds last year.
Most of the changes will apply from July 1, 2012.
