There has been a mixed response from the financial services industry to the release this week of the first tranche of the Government’s Future of Financial Advice reform legislation.
While the principles associated with most of the reforms have been broadly welcomed, the main area of focus in response has been addressing the proposed opt-in regulations.
AFA
The most vocal critic of the FoFA reforms has been the Association of Financial Advisers, which says the legislation ‘… fails Australian consumers and is clearly biased towards some segments of the industry at the expense of others.’
AFA CEO,Richard Klipin, said the FoFA draft legislation was always going to be measured against the twin objectives of access for consumers to quality advice and the removal of conflicts of interest:
“On both counts the FoFA draft legislation has failed. It uses a heavy-handed approach to force change without a shred of independent research, without any Treasury modelling or rigour and with no clear evidence as to the impact and consequences for consumers, advisers and the industry,” said Mr Klipin.
AFA President, Brad Fox, said use of research commissioned by the Industry Super Network (ISN), which indicated that the cost of implementing opt-in was in the vicinity of $11per client “… is a blatant demonstration of the Government’s bias.”
“The inclusion of the ISN research and the exclusion of all other valid research on the topic of opt-in is flabbergasting and, in our opinion, quite simply, wrong,” he said, adding, “The Minister in this regard is not acting in the public interest, but in the interest of industry super funds. Research from the advice market has opt-in costing $100-$250 per client with cost imposts at every level of the advice chain – adviser, licensee and product provider.
FPA
The Financial Planning Association welcomed the clarity that accompanied the release of the legislation. But, like the AFA, the FPA continues to reject the opt-in reform, calling it ‘… a cumbersome and unnecessary impost on Australia’s professional financial planners and their clients.’
FPA CEO Mark Rantall offered his opinion as to relevance of opt-in, given other industry reforms:
These initiatives effectively make Opt-In a redundant policy option
“We have led the way on reforms proposed within the FoFA legislation – including the introduction of a best interest duty and a banning of commissions on investments. These initiatives effectively make Opt-In a redundant policy option,” he said.
On the topic of risk commissions inside super, Mr Rantall delivered a positive response: “The FPA also welcomes the modification by the Government to restrict its ban on insurance commissions to MySuper/default funds and group schemes, and making those bans prospective rather than retrospective.”
The FPA also welcomed the Government’s agenda to legally define the term ‘Financial Planner’: “This is a vital action that, if passed, will give all Australians the safeguard of knowing the financial planner they deal with is backed by appropriate qualifications and an ethical framework,” said Mr Rantall.
FSC
Unlike the adviser representative associations, The Financial Services Council was more positive about opt-in. CEO, John Brogden, said: “In relation to the opt-in measure, we believe the two year time frame and the clarification that it will only apply to new clients makes the reform workable.”
The FSC noted also its general support for the client Best Interest reform, Mr Brogden commenting “… while the best interest duty appears to be process-oriented, there remain a number of areas where the industry will be seeking further clarification to ensure it provides certainty to consumers and financial advisers.”
SPAA
The Self Managed Super Fund Professionals Association said it was mostly pleased with the first round of the FoFA legislation, welcoming the easing of the Government’s position on banning all risk commissions inside super.
Although SPAA is opposed to opt-in measures, CEO, Andrea Slattery commented “While our preference would have been to avoid statutory opt-in obligations, we support the common sense approach announced today to provide greater flexibility in the way these obligations will be enforced, including the ability for advisers to secure their clients’ opt-in through e-commerce arrangements such as the phone or the internet.”
ASFA
The Association of Superannuation Funds of Australia said the draft legislation is the first step towards some certainty for the industry, and that its release means the financial services industry can begin to return its focus to other areas.
ASFA CEO, Pauline Vamos, said the Government’s final position on risk commissions in super “… is also very sensible and has removed any potential regulatory arbitrage in the delivery of advice on individual insurance products. This will limit the risk of anti-selection against super funds,” said Ms Vamos.
Meanwhile, the Federal Opposition has slammed the draft legislation, focussing on what it says is the Government’s conflict of interest in relation to the industry superannuation fund sector. Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Mathias Cormann, singled his opposite number, Bill Shorten, who he said “… continues to target small businesses and financial services competing with his friends in industry super funds instead of pursuing a balanced policy in the public interest.”
“A number of key features of the proposed FoFA legislation released today will unnecessarily increase costs and red tape for consumers and businesses for questionable consumer protection benefit,” he said.
