Loewenstein says if advisers admit they are getting kickbacks their clients often don’t know how to assess the information. The clients don’t know much about the field. That’s why they are seeking advice. Sometimes it makes them more trusting. If an adviser is going out of his or her way to be honest the client might “place more rather than less weight on the adviser’s advice”. The adviser on the other hand might feel emboldened, “exaggerating their advice in order to counteract the diminished weight that they expect estimators to place on it”. His experiments find advisers make more money when they disclose kickbacks and their clients make less (because they receive even more biased advice). They are also keener to help out advisers by buying the products that will give them kickbacks. If you doubt that Australians are extraordinarily bad at appraising the worth of their financial advisers, consider the results of this Australian Securities and Investments Commission survey, detailed in the interim report of the Murray financial system inquiry delivered on the day that Palmer caved. Eighty-six per cent of the Australian customers surveyed said they had received “good-quality advice”. Eighty-one per cent said they trusted the advice “a lot”. But when ASIC examined the advice it found only 3 per cent was good, 58 per cent was adequate and 39 per cent “poor”.

The advisers who renounced commissions were the most likely to provide good advice. “Unsurprisingly, where advice fees were contingent on a product recommendation there were numerous examples where the advice appeared to be structured towards recommending or selling financial products,” ASIC reported. The regulations Palmer has agreed to will allow banks to continue to reward advisers for shifting their products. The only constraints are that the advisers must work for the banks, they must style themselves as “general” rather than “personal” advisers, the payments cannot be ongoing and they must not be made “solely” because of the volume of product they have shifted. Payments or in-kind payments not linked to the sale of a particular product are fair game, among them payments for training, promotion, conferences in remote locations, the upgrade of computer systems and direct payments to staff who “execute” trades recommended by advisers. They are generous loopholes. They would have been illegal had Palmer not caved.

The Murray report doesn’t think much of them. It has suggested banning the use of the term “adviser” in such circumstances, relabelling it “sales” or “advertising”. The inquiry’s chairman David Murray knows about what masquerades as financial advice in Australia. He used to run the Commonwealth Bank. “Advisers” are allowed to practise in Australia with as little as six hours' training, although it’s often more - sometimes six weeks. In Canada, Hong Kong, Singapore, Britain and the US would-be advisers need to sit a national exam. Not here. I know of one economist with impeccable finance market credentials who wanted to work as a financial adviser to give something back. He was turned away because he hadn’t worked in sales. Unfathomably, there’s not even a public register of who does and who does not have an adviser's licence. (Palmer is on to this one. He demanded a register as a condition of agreeing to water down the rules.) If there was a register potential clients could see how long an adviser had been practising and whether they had ever been struck off. So limited are the regulator's powers that when advisers do get stuck off they simply pop up elsewhere. Murray says ASIC can prevent someone being an adviser but can’t prevent them from managing advice firms, something struck-off advisers often do.

In Britain, the Financial Conduct Authority has “product intervention” powers. It can review products or product categories and take them off the market. In Australia, ASIC can only warn. And it can do next to nothing about advisers who sell insurance. Incredibly effective lobbying by insurance providers means that under both Labor’s old rules and the Coalition’s new ones advisers can continue to accept commissions from insurance companies. It’s why advisers often ask: “Would you like insurance with that?” The commission is often as much as 110 per cent of the first year’s premium. It’s a powerful incentive for advisers to advise their clients to switch, regardless of the consequences. David Murray is on to it, even if Clive Palmer is not. But there’s hope. The regulations Palmer waved through apply only until December 2015. In November 2014 Murray presents his final report. Palmer’s no fool. He would probably be horrified at the state of the industry if he took wider soundings. He has 18 months in which to do it. Peter Martin is economics editor of The Age. Twitter: @1petermartin