New laws are being drafted to tighten up on the duties and payment arrangements of financial planners following a series of high-profile corporate collapses such as Storm Financial and the devastating result for clients.
Under the proposed changes, financial planners would be required by law to act in the best interests of the client and prioritise the client’s interests in case of conflict with the adviser’s interests.
Advisers would have to assess whether the client’s objectives and needs could be better met by means other than acquiring financial products, and if they propose to recommend a new product, they would have to weigh up the advantages and disadvantages of the product compared to any existing product the client may have.
Under a proposed “opt-in” requirement, providers of financial product advice that have ongoing fee arrangements would be required to provide all clients with an annual fee disclosure statement and to send a renewal notice to their clients every two years, giving the client the option to opt in to the ongoing fee arrangement. This would apply to consumers who become clients after 1 July 2012, not to existing clients.
The government is also planning to ban what it calls “conflicted remuneration”, removing payments to financial planners such as trailing commissions, which increase the incentive to sell certain products.