Shadow Financial Services Minister Mathias Cormann has slammed the revised FoFA reforms by saying that clients will face more red tape, increased costs and reduced choice under the new legislation.
(For a complete analysis of the FoFA reforms, see: FoFA Verdict)
Senator Cormann reiterated the sentiments of many industry bodies by saying: “Labor’s push to force people to keep re-signing contracts with their financial advisers on a regular basis is bad public policy which does not strike the right balance.”
“We note Bill Shorten has backed down from his initial intention to force people to re-sign those contracts every year.
“However even his revised proposal to require people to re-sign contracts every two years will add unnecessary red tape, increasing costs for both small business financial advisers and for their clients. We do not think the Parliament should endorse it,” Senator Cormann said.
He cited evidence presented during recent Senate Estimates which showed that on average, a small advice firm would face $50,000 per annum in additional costs as a result of Labour’s latest iteration of ‘opt-in’.
The Shadow Minister argues that, given the new ‘statutory best interests duty’, there are more than adequate and less costly ways to protect consumers.
“The Minister himself seems somewhat confused and unsure about the merits of his opt-in proposals as he is yet to decide whether to apply any penalties to breaches of his proposed opt-in requirements,” he added.
Neither the opt-in requirement, nor the bans of commissions on insurance inside super would have prevented the collapses of Trio, Storm or Westpoint
In relation to risk commissions being banned for insurance through superannuation, Senator Cormann believes that Australia needs to take heed of the UK experience (where risk commissions were banned but then reinstated because they were deemed not to represent a conflict of interest).
He says that the Opposition does not agree with the assertion that commissions on risk insurance are a ‘conflicted remuneration structure’, and believes banning them will increase costs for consumers.
“Banning commissions on risk insurance will increase costs for consumers, remove choice and leave many people worse off – particularly small business people who self-manage their super.
“We already have a problem of underinsurance in Australia, which this proposed ban would only make worse because it increases the upfront cost of taking out adequate risk insurance.
“To treat commissions on all risk insurance inside super differently from insurance outside super will also create inappropriate distortions, which invariably will not be in the best interests of consumers,” the Shadow Minister said.
“Neither the proposed two-yearly opt-in requirement, nor the proposed bans of commissions on risk insurance inside super would have prevented the collapses of Trio, Storm or Westpoint,” he added.
With regards volume rebates, Senator Cormann reiterated the Opposition’s position which is that those which do not distort advice, are part of legitimate business practice, and deliver direct benefits to consumers or enhance competition should be quarantined from any ban.
“It is unclear from the Minister’s announcement whether his proposed ban of volume rebates is appropriately targeted,” he said.
With regards the other proposals outlined in Minister Shorten’s revised FoFA package, the Shadow Minister said there was not enough clarity to be able to formulate final policy decisions.
“We will continue to examine all those proposed changes in close consultation with all stakeholders and make final decisions once the necessary detail and the proposed legislation is available,” Senator Cormann said.
To view the response of industry organisations and associations to the revised reforms, click here.
