A number of elements in the second Future of Financial Advice (FoFA) reform Bill introduced into Parliament last week have been rejected by the financial services industry.
Responding to the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011, the Association of Financial Advisers (AFA) called the start date of the reforms “unworkable”.
AFA CEO, Richard Klipin, said implementation of the new measures would take a considerable investment of time, energy and money.
Rushed implementation will only end in tears
“What we can say for certain is that the legislation is nowhere near ready for implementation in July 2012,” Mr Klipin said.
“As with any major industry change, the success of FoFA will depend on how well it is handled. Rushed implementation will only end in tears.”
The AFA also reiterated its concerns over the ban on commissions for insurance within superannuation saying it would create confusion in the minds of consumers.
“The government has created confusion with different insurance remuneration arrangements for inside and outside superannuation. This confusion will ultimately affect the take-up of insurance in an already dramatically underinsured population,” Mr Klipin said.
The Financial Planning Association’s (FPA) General Manager Policy and Government Relations, Dante De Gori, said there needed to be further clarification in the legislation around the definition of group risk to ensure the policy aligned with its original intent.
Mr De Gori explained that under the current legislation if an adviser provides their client with a personal recommendation to hold insurance within superannuation, the structure of the product will determine whether the adviser is entitled to receive payment via commission, not the nature of the advice.
“The insurance that you can obtain through some retail personal superannuation products is underpinned by a group scheme. On the surface it looks like a retail product but commissions are not payable because from the back-end this is actually structured as a group scheme.”
He said the FPA felt this went further than the policy intent, which was to avoid situations where advisers received commissions on all members of a group risk scheme, regardless of whether they’d made contact with them or not.
Provided there’s personal advice provided to an individual about their insurance needs then commission should be payable
“The clients can’t see the difference,” Mr De Gori said. “All they know is that they’re receiving personal advice, but in one scenario they can pay their planner for that advice via a commission, but in another scenario they will have to pay upfront.”
“Provided there’s personal advice provided to an individual about their insurance needs then commission should be payable,” he said.
But the FPA was broadly supportive of the contents of the Bill, including the Best Interest duty provisions, acknowledging the Government’s effort to improve the quality and availability of financial advice for all consumers.
In contrast, the Financial Services Council (FSC) said the Best Interest duty was impractical and would give rise to significant unintended consequences if not amended.
FSC CEO, John Brogden, said: “This duty undermines a core objective of the FoFA reforms – to increase the availability and accessibility of advice.”
“Our legal advice tells us this legislation would be very difficult to work with from the point of view of understanding what it means and how it would apply in practice.
“The Best Interest duty is the foundation of the entire reform package and without a clear and objective measure to test whether an adviser has acted in the best interest of their client, advisers will be exposed to significant risk and the cost of advice will go up.”
