Introduction
The following is a discussion on the part thereof the assignment. The discussions provide details of how the government of Australia is working to revive the financial advice industry, which has been on the decline. To save this robust financial industry the government of Australia drafted reforms aimed at sealing the loopholes that have wrecked the industry and affected WestPoint. The discussion describes the reforms of the Future of Financial Advice in Australia and the benefits that will accrue to WestPoint because of the reforms.
The reforms
Due to the collapse of financial advice resulting from decreased revenues and lack of proper policies, as analysis on WestPoint indicates, the government proposes the following changes in the future of financial advice. The first important reform is the duty of interest. This refers to the advisors interested when offering them financial advice. This reform shows the advisors need to have the client’s best interest at heart.
This is because there have been cases of financial advisors putting their interests first and thereby making dubious recommendations to their clients with an aim of benefiting themselves. The reform illegalizes such malpractices and in case of a conflict between the advisor’s interests and the client’s interests the client’s interest prevails. This means that WestPoint advisors must always provide financial advice that will advantage the client at all times (Commonwealth of Australia 2011).
The issue of best interest considers the fact that for the provision of advice to have an effect, the client is obliged to disclose some important financial information. This reform guarantees the client of privacy as it prohibits advisors from disclosing the financial information of their clients to other parties. It requires the clients to disclose reasonable information and likewise for the advisor to enquire for reasonable information. Client confidentiality is imperative and the agreement between the client and the financial advisor needs to have this guarantee (Commonwealth of Australia 2011).
The second crucial reform to take place in the financial advice industry as proposed by the advice on the future of financial advice in Australia concerns options in fee disclosure. This reform advocates that the advisor has to give the client especially the retail clients a chance to renew the contract every two years. This is necessary, as it will ensure renegotiation of terms of the agreement in need of negotiation. It also gives the client a chance to opt-out of the agreement completely without any financial repercussions. This is necessary, as it will ensure restoration of the client’s confidence in the advisor (Commonwealth of Australia 2011).
The future of financial advice in Australia also proposes to ban the conflicted remuneration. This reform concerns the ban on the remuneration received by the advisors from various companies because of recommending their products or services to their clients. This has seen many of the advisors recommending products or services that will affect the client negatively due to the commissions they get from the products sold to their clients. This resonates with the client’s best interest policy as it will ensure that the advisor has the clients’ interest at heart as there will be no benefit accrued to the advisor for recommending a particular product (Commonwealth of Australia 2011).
Similarly, the advisor will not receive payments from the client based on the results of the advice. Payments based on the volumes of goods or services will not feature in the future financial advice industry in Australia. This will serve to ensure that the advisor receives remuneration on mutual agreement of the value of advice, not on the results of the advice as the customer has the option of implementing or not implementing the options given by the advisor. This will place both the advisor and the client on the same platform of having mutual interests, which will benefit both the client and the advisor. This connotes that payment of advice fees will apply rather than direct commission-based pay (Commonwealth of Australia 2011).
The Future of Financial Advice in Australia further proposes to ban the non-monetary benefits given to advisors for their services. These nonmonetary benefits otherwise referred to as the soft dollars affect the relationship between the two parties, both the advisor and the client, in that the perceived value cannot be quantified and it may reduce the trust between the two parties. However, this ban exempts information technology products such as software, training, and other benefits whose value is less than three hundred dollars (Commonwealth of Australia 2011).
The other reform proposed by the government of Australia concerns the inclusion of scaled advice as a legal service. For a long time, financial advisors provide general financial advice to their clients. However, this reform acknowledges that the field of financial advice is broad and those advisors may choose to specialize in sales advice, insurance advice as well as business development advice. This scaled advice gives the clients a chance to choose the kind of specific advice they need. It also enables the advisors to specialize in providing information in financial areas that they are competent. These reforms will start taking place at the start of July 2012 with an intention to make the future of financial advice better (Commonwealth of Australia 2011).
Benefits
These reforms will benefit the financial advice industry in several ways. The first one is that it will boost the clients’ confidence once they are assured that the advisors are working in their best interest. The advisor will not be under pressure from marketers to make recommendations that will not benefit the client, as there will be no benefit in doing so. This will revive the industry and prevent it from collapse (Deloitte Financial Review 2011).
The segmentation of the industry through acknowledgment of the broad services existing in the industry will enhance competitiveness in the industry as well as enable the advisors to offer quality advice from their areas of specialization. In addition, it will ensure that the clients have the choice about what they want and only pay for services, which they need (Pritchard 2011).
The broad field will ensure that advice is available to everyone and not a preserve of a few individuals as has been the case. This is because the retail clients can access specialized advice at a fair price (Pritchard 2011). The reforms will enhance the remuneration of advisors as the ban on conflicted remuneration ensures that clients do not pay advisors based on results but on a predetermined pay. This is because commission-based pay is unreliable and there is the likelihood of failing to meet the set targets as some clients may have unrealistic targets (Steve 2011).
Conclusion
The field of financial advice is crucial in society as it gives the nation access to information and ideas that will enhance improvement in the lives of individuals as well the country. Failure to take this industry with the seriousness it deserves will result in the failure of financial institutions and many aspects of the economy. The success of this field improves the financial position of the country. Great companies, as well as nations and individuals, rely on their financial advisors for their success. Therefore, the lack of such advisors due to the lack of proper policies governing the operations of financial advisors will result in financial failure. The government of Australia’s initiatives to revive this sector is a great step in promoting the financial situation of every Australian citizen.
References
Commonwealth of Australia 2011, The Corporations Amendment (Future of Financial Advice) Bill, Commonwealth of Australia, pp. 1-19.
Deloitte Financial Review, 2011 Future of Financial Advice 2011, Deloitte Financial Review, pp. 1-4.
Pritchard, G 2011, FOFA is creating two distinct financial advice options, Finovia Pty Ltd, Melbourne.
Steve, H 2011, Hope in financial advice industry in Australia, Harvard Business Review, Vol. 8, pp. 8.