According to a story published on Saturday by the Australian Financial Review (AFR), Australia’s assistant treasurer, Arthur Sinodinos, is currently consulting with the country’s advisory industry on draft rules that would make it easier for advisers to receive commissions and other so-called “conflicted payments”. The draft rules had been “drawn up after heavy industry pressure”, the AFR noted.
Under the proposed rules, in order to receive commissions, advisers must not have tailored their advice to fit the client’s personal circumstances, the AFR said.
A related report this morning in The Australian, meanwhile, portrayed the re-opening of the commission battle as one of a number of recently-enacted reforms to the way financial products are sold that Australia’s current Coalition government has said it plans to un-do, even though “consumer groups…are…seeking to head off the government’s plan…as they insist that customers must be told of the fees they pay to financial advisers”.
As reported, Australia's Future of Financial Advice Act (FOFA) was signed into law in 2011, and its provisions ultimately became mandatory on 1 July, 2013, after a 12-month period during which they were optional.
In September of last year, however, the country's Labor prime minister, Kevin Rudd, was replaced by Tony Abbott, who represents a Liberal-National coalition government that campaigned on a platform of being friendlier to business interests.
Thus it was that less than six months after FOFA took effect, on 20 December, the Abbott-led government announced what it has called "a package of changes to FOFA to implement its election commitment to reduce compliance costs and regulatory burden on the financial services sector".
"The changes are aimed at ensuring the integrity of the financial advice framework is maintained, [while] delivering a system that offers affordable and accessible financial advice to the Australian community," according to a statement on the Australian Treasury's website.
'A$1bn in compliance costs'
In its report on Saturday, the AFR noted that the plan to backtrack on the complete commission ban came after Australia's financial services industry had spent some A$1bn ($900m, £550m) preparing to comply with the FOFA reforms.
News of a possible partial backtrack by Australia's regulator on the subject of commissions will be of particular interest to other regulators, such as those in the UK, which have followed the Australians' lead in this regard, or at least were singing from the same hymn sheet as they were drawing up their own rules.
The UK version of Australia's FOFA, a package of regulations known as the Retail Distribution Review, took effect at the beginning of 2013.
The possibility of Australia back-tracking on its commission ban will also likely capture the attention of financial advisers operating in the UK and other jurisdictions that have banned commissions on the sale of investment products, or are considering doing so.
That's because many of these UK-based financial advisers – like their Australian counterparts – have been struggling to come to grips with the sudden loss of commission income, which is generally difficult to replace entirely by the charging of fees for advice.
In an earlier AFR story about the Abbott-led government's plans to undo some of the FOFA reforms, published in October, just after the election, Australia's financial services industry was described as "lobbying hard for more substantive concessions" than those the Coalition had promised during the election.
To read the Australian Financial Review story published on Saturday, click here.
