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Financial advisers - New remuneration constraints and competency requirements addressing perverse incentives and poor advice
Journal article   Peer reviewed

Financial advisers - New remuneration constraints and competency requirements addressing perverse incentives and poor advice

Julie-Anne Tarr, Jeanette K Van Akkeren and Rania Shibl
Company and Securities Journal, Vol.35(8), pp.561-571
2017
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http://sites.thomsonreuters.com.au/journals/category/journals/company-and-securities-law-journal/View
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Abstract

Accounting, Auditing and Accountability Law financial advisers remuneration competency requirements incentives Australian financial services market Murray Inquiry Corporations Amendment
The provision of financial advice within the Australian financial services market has been, and remains, an area of very considerable regulatory scrutiny and legislative activity. The Australian Securities and Investments Commission (ASIC)2 has identified a high level of non-compliance in the quality of advice given and misaligned incentives in remuneration arrangements that exacerbates conflict of interest problems. In particular, ASIC found a strong connection between high upfront commissions, policy lapse rates and poor consumer outcomes. Similarly, the Trowbridge Final Report3 , Murray Inquiry4 and a Parliamentary Joint Committee5 recommended several reforms, including modified remuneration arrangements for advisers and licensees to minimise conflicts inherent in existing arrangements and the need to improve advice standards through the upgrading of education, training and professional requirements and through enhanced client engagement. These reports and inquiries have collectively informed and generated a package of life insurance remuneration and, more generally, financial adviser competency reforms. These are contained in two pieces of legislation titled the Corporations Amendment (Life Insurance Remuneration Arrangements) Act 2017, and the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017. These Acts were passed by both Houses on 9 February 2017 and assented to on 22 February 2017. This article considers these new Acts in some detail as well as the market context and the rationale underpinning these reform measures. The article foreshadows also additional reform measures on the horizon6.

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