The wealth management industry was overwhelming in its support of the Senate passing two significant reforms aimed at strengthening consumer confidence in the financial planning and life insurance sectors.
Both pieces of legislation were passed unchallenged in the Senate during parliament yesterday.
Professional Standards of Financial Advisers
Under the reforms, a commonwealth standards body will be created to govern the professional standing of the financial advice sector. The body will set the educational requirements, develop and set the exam and create a uniform Code of Ethics.
From 1 January 2019, new advisers will be required to hold a relevant degree before they are eligible to commence the supervision year and to sit the exam, and existing advisers will have two years to pass the exam and five years to reach a standard equivalent to a degree.
The Code of Ethics will commence on 1 January 2020.
The reforms received wide support from the financial planning sector who see a bright future for financial advisers.
"This is a significant piece of reform which will strengthen financial advice and community trust in the industry," the Financial Services Council said in a statement.
"Consumers will have confidence that those they entrust to provide them with advice meet high standards of initial and ongoing education and professional standards."
The Financial Planning Association similarly welcomed the reforms, adding they look forward to working with the new independent standards setting body.
"The legislation will provide assurance to consumers that their financial planner will be highly trained, experienced and subject to an enforceable code of ethics," FPA chief executive Dante De Gori said.
Minister for Revenue and Financial Services Kelly O'Dwyer welcomed passage of the Corporations Amendment (Professional Standards of Financial Advisers) Bill, emphasising the government is committed to building consumer trust and confidence in the financial advice industry.
Notwithstanding their support, Labor still believes more needs to be done to ensure consumers are protected in the financial services sector.
Senator Jacinta Collins (ALP) said the reforms were a welcomed step forward, but there is more to be done to resolve the issues surrounding the culture, practices and consumer protections in the financial services sector.
Collins warned the public to keep a close watch on who the government appoints to the standards-settings body.
The Government will now turn its attention to developing and implementing an industry funding model for the standards body.
Life Insurance Remuneration Arrangements
A day for double celebration, the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 passed the Senate in the same sitting, after two years of rigorous debate.
The changes will reduce the financial incentive for financial advisers to place consumers into new life insurance policies where there is no consumer benefit.
Under the reforms, upfront commissions will be capped at a 60% maximum and ongoing commissions will be capped at 20%. Further, there will now be a two-year clawback for upfront commissions, where in the event of a policy lapse 100% is clawed back in the first year and 60% in the second year.
The changes will commence on 1 January 2018.
AFA chief executive Brad Fox welcomed the reforms saying they will level the playing field for advisers who arrange more than half of the total life insurance held by Australians.
"The changes brought by this Bill are designed to encourage the public to have more trust in using a financial adviser rather than taking the risk of arranging their own life insurance and getting a weak policy, or the wrong amount or type of insurance for their personal situation," Fox said.
Fox added that the passing of the Bill does not mean that life insurance reform is now complete.
"The Life Insurance Framework is wider than the Bill. It includes broadening Approved Product Lists, simplifying Statements of Advice, and very importantly a life insurer Code of Practice. Progress has been made in these areas, but more work is required," Fox said.
FPA head of policy and government relations, Ben Marshan, said the passing of the legislation brings an end to the ongoing uncertainty for advisers and clients.
"Our members have expressed uncertainty when recommending life insurance solutions to their clients, in light of the information vacuum on life insurance since May," he said.
"[The legislation] addresses these concerns and creates certainty for members when discussing and recommending life insurance."
The Parliamentary Joint Committee hearing into Life Insurance is due for report on 30 June 2017, offering individuals the chance to identify widespread issues and recommendations for reform.