For a government that has at times looked reform-shy despite its protestations, yesterday’s financial industry reforms are a big effort.  They’re also smarter than they look.

The outcome of Bernie Ripoll’s Financial Services Inquiry in November was, as Crikey reported at the time, a halfway-house between real reform and the unacceptable retention of the status quo, put together with the goal of securing bipartisan support.

Bowen drops the halfway-house stuff altogether and goes not merely for real reform but for a new model that might significantly change Australians’ willingness to use the financial services industry.  Retained from the committee report is the fiduciary duty requirement, making financial advisers put clients’ interests ahead of their own; enhanced powers for ASIC and investigation of a model for last-resort investor compensation.  But Bowen has gone further than the committee’s proposed collaborative model for ending commissions and proposed to entirely ban commissions and target-based payments from financial service business to advisers.

Percentage-based fees — fees paid by clients to advisers based on the amount of assets involved — will only be permitted for ungeared assets.  Advisers will no longer have an incentive to encourage their clients to borrow, Storm-style, to invest.

Bowen also wants to ban “soft-dollar”  benefits — where a financial service business provides non-cash payments to advisers — but can’t yet work out a way to do it, so an expert advisory panel will consider the issue.

And percentage-based fees for advice will only be permitted if the client signs on to them every year, year in and year out, on an “opt-in” basis (not opt-out, as some outlets reported), although the requirement will only be prospective, for new clients.

At the moment financial advisers make a motza out of Australians’ notorious disengagement from their superannuation, which for most of us is the only “wealth management” we undertake.  Hundreds of thousands of us — possibly millions — are paying for superannuation “advice” we have never asked for and don’t want, but don’t pay enough attention to our super to actually notice it.  Bowen proposes to turn that disengagement around and require active opting-in by clients to any advice that they want.

This is the reform that the retail super industry will desperately lobby to reverse or neuter, insisting it will somehow prevent Australians from getting the financial advice they want — when all the evidence is Australians don’t ask for it.

But on that issue, there’s another reform embedded in the package yesterday that potentially is as significant as the opt-in requirement.

Last year, following work by the government’s Financial Services Working Group, ASIC permitted superannuation funds to offer limited “intra-fund advice” to members on basic financial management matters, meaning people would not need to go to financial advisers to obtain basic advice about their superannuation, such as on voluntary contributions.

Yesterday Bowen flagged that this would be expanded to broader areas such as transition to retirement, beneficiaries, the interaction of superannuation and transfer payments and retirement planning, expanding the range of basic financial advice that Australians can receive from their own super fund.

The advice will come with a cost, but it is unlikely to be as expensive as that from a financial planner.  It will help in the slow process of getting Australians more engaged with their superannuation and taking more control — and thereby increasing competitive pressure on the industry.

It also undermines the opposition’s claim that the package will somehow reduce low and middle-income earners’ access to financial planning advice, but we’ll be hearing a lot about that over the months ahead.

Financial planners’ groups objected to permitting intra-fund advice, placing them at odds with the super funds, including the Investment and Financial Services Association, representing retail super funds.  However, planners will be happier with Bowen’s proposed end to accountants being permitted to establish self-managed superannuation funds.

IFSA has been busily repositioning itself on the commissions issue over the past 12 months, declaring that it supported a long-term phasing out of commissions — albeit a phasing-out heavily loaded with caveats.  Along with the Financial Planning Association, IFSA realised that Storm and other collapses made retention of the status quo impossible for the government.  It was a conclusion that other sectors of the industry are still struggling to reach.

In truth of course it has been industry super funds and consumer groups that have long pushed for an end to commissions, and copped plenty of invective from the rest of the industry for having done so.

The opposition is promising to oppose the ban on commissions — placing it at odds with IFSA’s enthusiasm for the reform package, voiced by former NSW Liberal leader John Brogden.

It sometimes looks like the coalition simply has a mental block about financial services: it never supported the introduction of compulsory super, cut off the Keating government’s plan to expand it, and in government heavily favoured high income earners and the retail super industry (dominated by the big banks) over industry super, where it saw the evil hand of trade unions at work.

Now it is aligning itself with the shonks and industry dinosaurs that want to retain a practice that is widely accepted as preventing punters from getting objective advice from the men and women they handsomely reward for advice.

But that’s probably why there’ll be no legislation before next year and possibly not until July 1, 2011, when the new and, from the government’s perspective, hopefully more friendly Senate shaped by this year’s election will sit.