Banning commission payments will boost the integrity and attractiveness of Australia’s financial services industry to offshore investors, according to Financial Services Minister Chris Bowen.

The ban on “conflicted remuneration structures” for financial planners takes effect on July 1 2012. Mr Bowen says it’s a key plank in a broader push to promote Australia as a major financial services hub. Australia currently has $1.1 trillion in funds under management, making it the second-largest financial market in the Asia-Pacific region behind Japan.

In a speech to Parliament last week, Mr Bowen said establishing Australia’s financial credibility on a world stage would boost job creation, reduce the cost of financial services and improve the range of financial products.

The Government is enacting several recommendations by the Johnson Review into Australia’s financial services industry, including the ban on commissions.

“I would argue very simply that it would be impossible to ask those in other countries to place their trust and confidence in our financial planning industry if Australians do not,” Mr Bowen said.

“To this end, the report argued that resolving conflicts of interest in the financial planning industry is ‘consistent with ensuring that the reputation of Australia’s financial sector, in particular funds management and financial planning, is maintained overseas – a prerequisite for greater international engagement.

“This is one area where the Government sees so much scope for improvement.”

Australia’s largest financial planning firms are already decoupling commission payments from their business models. More than 5300 financial planners at AMP, MLC/National Australia Bank and Axa will junk commission fees from July 1.

But despite the Financial Planning Association backing the reforms, not all planners support the Government’s ban.

A report by researcher Investment Trends has found half of the planners feel the reforms will adversely affect their businesses. Nearly 30% are expecting a large number to leave the industry in response to the ban on commissions, although only 3% have openly stated they will exit.

The report also says 54% of planners believe the reforms will increase the cost of financial advice, which runs contrary to the Government-sponsored line of cheaper advice through greater transparency.