Monday, November 23, 2009

"Cease payments from product manufacturers to financial advisers"

I never thought I would see the day. So soon.

That's what has just been recommended by the Joint Parliamentary Inquiry set up after the collapse of Storm Financial.

Recommendation 4

The committee recommends that the government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers.

Here's what the Committee Chair Bernie Ripoll just told me at his 9.00 pm news conference:

"The word cease means stop".

"This is a big, big change that we have recommended. It is huge. For it to happen it has to be done in consultation with the sector."

"A clear message has come from the sector to us that this is what they want... We need to work on ensuring that what we want to deliver in intent is actually delivered in practice."

Would this apply to mortgage brokers, insurance brokers? I asked.The answer: Not yet.

"They are not defined as financial advisors under the Corporations Act at the moment."

But I'm happy. Very happy. Let's get busy.

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JonH said...

I'm not a financial adviser (in fact, I work for an industry super fund, so financial advisers are the devil if you believe some of the ads) but I don't think a ban on commissions is the answer.
Commissions aren't necessarily bad and they won't stop bad advice. Storm didn't have commissions and it was still a structure that was wrong.
What is wrong is that the system is too complex for people to understand (and yes, that goes for super funds too) so they rely on their advisers. If the advisers are wrong, dumb, or out to steal from people, then things will go wrong.
My view is that simple disclosure is the way to go, but it's not necessarily simple to come up with a simple disclosure for fees and payments.

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