January 6, 2014
The industry has largely thrown its support behind the proposed Future of Financial Advice (FoFA) legislation changes announced by the Government prior to Christmas.
Assistant Treasurer, Senator Arthur Sinodinos, confirmed the new Coalition Government would act on its promised FoFA reforms, among which is a change to the ban on commissions for insurance inside superannuation (see: Sinodinos Announces FoFA Amendments).
Following is a summary of the key industry bodies’ responses to the proposed changes…
AFA CEO, Brad Fox, described the changes as “… essential to achieving the outcome of great advice for more Australians”.
“From a regulatory perspective, the initial release of FoFA was heavy-handed and failed to balance the benefit to consumers with the additional regulatory cost,” Mr Fox said.
“These sensible amendments from the Coalition eliminate unnecessary red tape and costs and will help thousands more Australians receive the benefits of life-changing financial advice backed by the safety-net of strong regulation that enforces client best interests.
We are very pleased that our consultation with the Coalition over the last four years has helped shape these prudent amendments
“We are therefore very pleased that our consultation with the Coalition over the last four years has helped shape these prudent amendments,” he said.
Mr Fox also said the AFA appreciated that the Government had reaffirmed they will deal with the FoFA changes in accordance with their pre-election promises, especially given the urgency of issues such as grandfathering of conflicted remuneration when changing licensees.
“We will be seeking additional clarification about the use of regulation and legislation to effect these changes and this will give us a clear indication of the time frames we can expect to achieve the improvements.
“After several difficult years, where financial advisers and planners have had uncertainty and agenda-driven policy forced upon them, this is a positive note upon which to end 2013,” he said.
The Financial Planning Association also congratulated the Government on its proposal, specifically highlighting the following as ‘welcome changes’:
- The removal of the opt-in requirement, which the FPA said was a redundant policy in a fee for service environment and in light of the best interest duty
- Changes to the best interests duty, that the FPA believes will better facilitate scaled advice, thereby increasing access to and affordability of advice for consumers
- Changes to the grandfathering clause which will make it more equitable and fair for all financial planners when changing licensees or selling their businesses
- Removal of the retrospective legislation on Fee Disclosure Statements (FDS) to apply only to new clients
FPA CEO, Mark Rantall, said: “These changes are in line with the FPA’s advocacy initiatives from the outset of FoFA and are a positive step in making the reforms more practical for financial planners.”
However, the FPA said it was still keen to see further changes to the FDS requirements, to streamline the process. In addition, Mr Rantall said the Association would continue to push for the enshrinement of the terms ‘financial planner/adviser’ following the lapsing of this Bill due to the 2013 Federal Election.
“The FoFA reforms should not be seen in isolation but as part of a whole effort by the Australian financial planning sector to continue the journey towards becoming a distinct and respected profession. Enshrinement of the term financial planner would further enhance the consumer benefits of FoFA and achieving this milestone will be another key focus for us in the months to come,” Mr Rantall said.
According to the Financial Services Council, the refinements to the FoFA reforms will mean advisers are able to provide consumers with affordable advice that is tailored specifically to their needs.
“The FoFA refinements announced by the Assistant Treasurer are sensible deregulation measures which are consistent with objectives to make advice more accessible and affordable for consumers,” said newly-installed FSC Director of Policy and Global Markets, Andrew Bragg.
Mr Bragg said the changes to the scaled advice and best interests duty provisions would allow financial advisers to scale their advice based on the instructions of their clients.
“This is a welcome reprieve for consumers and for the advice industry,” Mr Bragg said.
“It means consumers can now instruct advisers on exactly the advice they desire, in contrast to the previous scenario where advisers were required to provide a comprehensive financial plan regardless of whether a client wanted it.”
Despite having announced an end to its ‘war of words’ with the FSC in August 2013, Industry Super Australia (formerly the Industry Super Network) opposed the view of the vast majority of financial services stakeholders, arguing the FoFA legislation should not be changed.
ISA CEO, David Whitely, said the FoFA laws deserved a chance, and that the changes proposed by the Coalition Government would re-open the debate about whether a financial planner is an impartial adviser or a sales representative, ultimately reducing confidence in financial advice.
“ISA urges the Government to stick to the sensible centre or risk further scandals in the financial planning industry,” Mr Whitely said.
“The FoFA laws were the result of years of debate and negotiation. A number of concessions were made by the previous Labor Government to the banks and financial planners before the current laws were passed in 2012.”
Instead of the changes proposed by Senator Sinodinos, Mr Whitely called for the FoFA legislation to be reviewed as part of the 2014 Financial System Inquiry (see: Dunn Joins Financial System Inquiry).
The Australian Institute of Superannuation Trustees was also less than impressed with the proposed changes, warning they would make simple financial advice less accessible for super fund members.
…the existing FoFA laws should be given a chance to be properly implemented
AIST CEO, Tom Garcia, said super funds were concerned the proposed changes to FoFA would restrict their ability to provide accessible financial advice to members through changes to the intra-fund provisions.
“Super funds have long recognised that access to financial advice is a key tool in helping members build their super and improve their retirement outcomes, “ Mr Garcia said. “We think it is very important that the bulk of the population – who do not currently see a financial adviser – are able to access straightforward financial advice through their super fund.”
Mr Garcia said the existing FoFA laws were an important consumer protection measure that should be given a chance to be properly implemented before any review.
Mr Garcia said AIST supported calls to have the FoFA laws reviewed as part of the 2014 Financial Systems Inquiry.
For more on the amendments announced by Senator Sinodinos, click here.