Professional Financial Advice

Background: The Storm Financial scandal was a major turning point in the Australian financial planning industry. Storm Financial, a financial advisory firm, had been recommending highly leveraged investment strategies to its clients, many of whom were retired and had limited financial resources. When the global financial crisis hit in 2008, many of Storm’s clients lost their investments, leading to widespread financial ruin.
Impact: The scandal caused significant public outcry and raised serious concerns about the lack of regulation in the financial planning industry and the ethical conduct of some financial planners.

Background: In response to the increasing scrutiny and public concern about the financial planning industry, the Australian government introduced the FOFA reforms. These reforms were designed to improve transparency, reduce conflicts of interest, and enhance the professionalism of financial planners.
Key Changes: Ban on Commissions: Financial planners were prohibited from receiving commissions for selling certain financial products, such as investment funds and insurance products, which was a significant conflict of interest.
Best Interest Duty: Financial planners were required to act in the best interests of their clients, prioritizing their clients’ needs over their own financial gain.
Fee Transparency: Financial planners were required to disclose all fees and commissions, ensuring clients had a clear understanding of the costs associated with their advice.
Ongoing Fee Arrangements: The reforms limited the use of ongoing fee arrangements unless clients were receiving ongoing services.

Background: The Royal Commission was established by the Australian government to investigate widespread misconduct in the financial services sector, which included banks, superannuation funds, and financial planning firms.
Findings: Misconduct and Ethical Failures: The Commission found numerous instances where financial planners had recommended inappropriate products to clients, engaged in misleading conduct, or failed to act in the best interests of clients.
Lack of Accountability: Many financial institutions were found to have failed to adequately supervise their planners, and several major firms were exposed for charging fees for services that were never provided.
Recommendations: Stricter Licensing and Supervision: Financial planners would be required to meet higher standards of education and professional conduct, including a requirement to hold a degree-level qualification.
Stronger Enforcement: Regulatory authorities were called to more rigorously enforce the rules and take stronger action against those who breach their duties.

Background: As part of the ongoing reforms in response to the Royal Commission’s findings, there was an overhaul of the educational and professional standards for financial planners.
Key Changes: Mandatory Degree Requirements: Financial planners were required to hold a relevant degree (e.g., in financial planning or a related field) to ensure they had the necessary knowledge and skills.
Professional Year: New entrants to the industry were required to complete a “professional year” under the supervision of an experienced planner before becoming fully accredited.
Ethics Exam: Planners were required to pass an ethics exam as part of their ongoing professional development and certification.
Ongoing Professional Development: Financial planners now need to meet continuous professional development (CPD) requirements to maintain their license.

Background: The FASEA was created to oversee the education, training, and ethical standards for financial advisers. It introduced a framework to improve the professionalism of the industry and ensure that financial advisers met higher standards of conduct.
Key Developments: Degree and Exam Requirements: FASEA set guidelines requiring financial advisers to have a degree, pass an ethics exam, and complete continuous professional development to maintain accreditation.
Code of Ethics: A new Code of Ethics for financial advisers was introduced, with strict guidelines on ethical conduct and professional behavior.

Australian Securities and Investments Commission (ASIC): ASIC’s role in regulating financial planners and ensuring compliance with the law was strengthened, with greater focus on ensuring planners met ethical standards and followed best practices.
Continued Reforms: The Australian government and regulatory bodies have continued to implement reforms to improve the financial planning industry. This includes proposals to reduce the number of “grandfathered” commissions (commissions on products sold before reforms were introduced) and tightening rules around conflicts of interest.