Suggestions that the Government’s proposed Future of Financial Advice reforms will lead to a re-introduction of commissions, and exempt advisers from acting in the best interests of their clients are “flat-out wrong”, according to the two primary adviser associations.
Speaking at the Association of Financial Advisers’ GenXt Roadshow in Sydney last week, AFA CEO, Brad Fox, said some of the mainstream media reports in relation to the reforms barely touched on fact.
“It is time for the misleading and vested interest rhetoric around amendments to the Future of Financial Advice reforms to be corrected in favour of a real and demonstrated commitment to an outcome that will help more Australians enjoy a substantially self-funded retirement,” he said.
Mr Fox called for an end to what he said called a “squabble over Australia’s retirement pool”.
“We are calling on all industry participants to step up and focus on the people who really own the money – the mums and dads of Australia,” he said.
The AFA also issued a statement responding to the argument that the changes to the ban on conflicted remuneration for general advice would see a reintroduction of commissions.
It’s time for the misleading and vested interest rhetoric around amendments to the FoFA reforms to be corrected
“These claims are totally misconceived,” said Mr Fox. “The interpretation of the FoFA Amendments relating to general advice have been reported as meaning that financial advisers will provide general advice in order to be able to receive conflicted remuneration. These claims are a misinterpretation of the purpose of the draft FoFA amendments.”
The AFA said it understood that the general advice amendments were drafted to facilitate the general advice services provided by banks and call centres, etc. and will have no relevance to the activities of financial advisers who provide personal advice and have ongoing relationships with their clients.
“The provision of general advice is inconsistent with the manner in which financial advisers help their clients to achieve their objectives,” Mr Fox explained. “While the general advice exemption may have a role to play elsewhere in the financial services industry, it is simply irrelevant for the financial advice profession.”
The Association outlined the reasons why it would be impractical for financial advisers to provide general advice (and thereby gain access to commissions through the exemption):
- Self-employed advisers typically have a range of products to choose from. It is not possible to have a general discussion with a client and then narrow it all down to enable recommending a specific product all with no reference to the client’s personal circumstances. This is contrary to the central role of a financial adviser providing personal advice.
- For an existing client, where an adviser already knows the client’s personal circumstances, it is extremely problematic for the adviser to claim their advice is general advice.
- It is unlikely that commission paying products will remain available in the financial advice landscape.
- Licensees, who are responsible for the conduct of financial advisers, are most unlikely to support a general advice business model for financial advisers.
- Product providers, who have no visibility over the form of advice provided to the client, simply will not agree to pay commission to financial advisers for general advice. They can have no way of knowing that general advice was given and would be in breach of the conflicted remuneration rules if the advice was personal.
…the media portrayal that advisers and clients are on opposite sides of this debate is rubbish
Mr Fox also said that clients and advisers have been portrayed as being on opposing teams. “In fact, they are on the same side – clients can walk away from an adviser any day of the week. If they are not satisfied they can leave. As a professional community, we put a lot of energy into making sure that clients are at the heart of everything we do and the media portrayal that advisers and clients are on opposite sides of this debate is rubbish. They are inextricably linked,” he said.
“If the red tape is too hard to cut through, people will move into retirement without the personal financial advice they need in order to secure a substantially self-funded lifestyle in retirement. That’s what’s at stake. The FoFA amendments need to be passed.”
The Financial Planning Association (FPA) was similarly quick to respond to assertions that the reforms would mean advisers were no longer required to act in the best interests of their clients.
The ISA has stated publicly that it believes the removal of the seventh safe harbour step from the best interests duty legislation equates to an effective repeal of the best interests duty, because the remaining six steps do not use the words ‘in the client’s best interest’.
“We are witnessing an extraordinary effort by product providers and those who represent them to build a political position – based on flimsy arguments – in defence of a redundant section of FoFA pertaining to the best interests duty,” said FPA CEO, Mark Rantall.
He offered the following facts in defence of this position:
- The best interests duty obligations are for the first time a statutory obligation in law. This was not the case before FoFA and this duty will remain long after any amendments made by the Government.
- The industry pushed for the safe harbour steps to provide some criteria for how a financial planner could be judged otherwise it would have to wait until the courts decide on what best interest looks like by setting a precedent
- The best interests duty and related obligations (in Division 2 of Part 7.7A of the Corporations Act) require financial planners to complete four obligations when providing personal advice to retail clients:
- Act in the best interests of their clients (s961B)
- Provide appropriate advice (s961G)
- Warn the client if advice is based on incomplete or inaccurate information (s961H)
- Prioritise the client’s interests (s961J and s961L)
- The proposed change to the best interests duty is simply the removal of the seventh safe harbour step s961B(2)(g) – this does not in any way remove or diminish the legal obligation for a financial planner to ‘act in the best interests of their clients’ as required in Division 2 of Part 7.7A of the Corporations Act.
Wednesday 19 February marks the last day for submissions on the Government’s draft legislation and regulations. Click here to view the draft documents or to lodge a submission.
In related news, Assistant Treasurer, Senator Arthur Sinodinos, has responded to the ISA’s concerns that the FoFA reforms will be challenged in court. Click here for more.
All very confusing for me. Personally my business model has not changed. I put clients best interest first but shouldn’t that be a given? I am sure we all do that, right!
I am glad that I don’t have to send those FDS letters out as they took my whole office a week to do at a cost of around $23,500.
I am glad that I don’t need to re explain why I need a signature for the client to continue with my services as opt in requires you to do .
There is nothing wrong with the payment of COMMISSIONS to advisors for their advice and responsibilities associated with Funds Management providing it is disclosed in a SoA in the NORMAL WAY! This is particularly suitable for smaller accounts, surely, as an inexpensive method of being remunerated for an adviser’s continuing responsibilities, which, in turn, cost him: time to maintain surveillance of the client’s account, communications with the client, reviews, administration costs and PI Insurance costs!
The Hon Chris Bowen during ABC Lateline on the 11th Feb 2014 said that: “And you can have disclosure…. ‘By the way I get a commission’.. and how many people read that is open to very, very much conjecture” and thereby revealed that HE DOES NOT KNOW WHAT DETAILED DISCLOSURES GO INTO A SoA, and that HE TREATS THE PUBLIC AS THOUGH THEY ARE STUPID.
In which case why did he advocate any of the disclosures called for in his FOFA legislation when he does not believe that they will be read????
If only the costs and fees of Industry Funds were completely transparent. If only the rewards paid to Union nominees and ex Labor Politicians occupying “jobs” on Industry Funds as Trustees, Directors and salespeople were fully disclosed. (Even Ged Kearney and Paul Howes are Fund Trustees and what would they know) There is far too much Labor involvement in Industry Funds aimed at destroying the Adviser industry which is the most important part of funding one’s retirement.
How is it that ASIC allows Industry Funds to accept money from members without a rigorous check of a member’s risk profile? How is it that APRA has not applied the sole purpose test to Industry Funds, the aims of which are to control the Australian Share Market, to quote Garry Weaven, and, presumably, to destroy the Advisory Industry. How is it that truly independent and competent and experienced people cannot be appointed as Trustees of Industry Funds? How is it that Industry Funds can get away with NIL Advice, NIL Risk Profiling, NIL SoA, when a member deposits a significant sum such as $250,000 into his account, but a Licenced Adviser would be liable to sanctions by ASIC for such conduct??
Robert,your comments have cut to the bone and should be revealed in all media.the general public must be made aware of this.I for one educate my clients on Fofa and the insidious attempts by labour and their cohorts to discredit us.And thank God our clients are not stupid. perhaps ISA members are?
David Verster
Why do programs such as the ABCs Lateline fail to hold politicians such as Bowen to account for their comments and accusations. The lack of research and understanding of our industry by the media has given oxygen to these nonsense comments and accusations . Is it any wonder that the government is questioning the funding provided to the ABC and newspapers are losing subscriptions. Journalists failure to provide quality comment and discussion has severely diminished their currency and they only have themselves to blame.
We all have far better ways to spend our time than listen/read such poor quality journalism.
James Smith, It seems to be common practice for Leigh Sales, Ticky Fullerton and Emma Alberici (who interviewed Bowen on 11th Feb 2014) to allow comments to pass unchallenged by some people, seemingly of one particular political faith, as Alberici did when interviewing Bowen. On the other hand the same journalists can spend much time repetitiously challenging some others like Scott Morrison on minor problems such as a problem hand. This debate about the nature of the ISA and their attempts to destroy the advisory industry should be speeded up for the benefit of those who want a decent retirement and who don’t want their hard earned savings used for political purposes by the ISA. The obvious conclusion is to stop Labor Party involvement in the Super industry.
Unfortunately with the big increase in media volume over recent years, and the simultaneous decrease in media resources, journalists are expected to do more with less. So they rely on third parties to do their research and investigation for them. Essentially, they regurgitate press releases. The union super movement (ISA) has been spending lots of its members money on an inhouse PR machine to generate “interesting news” stories for media outlets desperate for more content. That’s why we’ve seen the media spouting so many complete falsehoods about the FOFA amendments recently. They’re just regurgitating the lies fed to them by ISA.
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