Consumer trust isn’t something to be taken for granted, but reports from the UK, US and here at home are all pointing towards an uplift in trust levels around financial advice, which can only be a welcome development.
There are significant tailwinds behind the financial advice industry at the moment, but some major obstacles are still preventing advice practices from taking advantage of surging demand according to a new study from CFS.
Regulation Impact Statement to be prepared post fact
Following the 2009 Parliamentary Joint Committee on Corporations and Financial Services Inquiry into Financial Products and Services in Australia, the FoFA reforms were developed.
It identified conflicted remuneration as a leading cause of poor financial advice that was provided to clients. The resolution was to ban conflicted remuneration and to thereby remove the conflict between advisers and their clients’ interests, that seem to arise when advisers are provided with incentives from product issuers.
It determined that by removing conflict, via the removal of conflicted remuneration, advisers were more easily able to act in the best interests of their clients and provide better advice, away from the influence of product issuers.
In 2020, former Treasurer Josh Frydenberg extended the ban on conflicted remuneration to Listed Investment Companies (LICs) and Listed Investment Trusts (LITs) sold to retail clients. These are referred to as ‘stamping fees’ which represent the remuneration payable to advisers and brokers who distribute or recommend new LITs and LICs for clients.
The ban was aimed at eradicating fees that have the potential to tempt advisers and stockbrokers to act in their own interests. But an unintended consequence from the banning of stamping fees, was that no new LIC or LIT were issued in 2020.
As is the case with most advice regulations, the stamping fee ban was only directed to those advising retail clients. At the conclusion of the removal of the banning of conflicted remuneration back in May 2020, a Regulation Impact Statement (RIS) was required to be prepared.
However, a RIS was not completed prior to the final decision. This week, Treasury issued a series of adviser questions required to complete a post-implementation review of the policy within two years of implementation.
