A repeat of a situation similar to the collapse of Storm Financial would be unlikely if the Future of Financial Advice (FoFA) amendments were passed, the Financial Services Council (FSC) has asserted.
The FSC was just one of a number of industry bodies to come out in support of Senator Mathias Cormann’s announcement that the Government would proceed with its FoFA amendments with only minor changes to its original legislation (see: FoFA Amendments Will Progress Through Regulations). Speaking to the media shortly after last week’s announcement, FSC CEO, John Brogden, said it was “hard to imagine, with the best interests duty in place, that we could see a Storm ever happen again”.
“There has been a malicious campaign of misinformation to try and suggest that the best interests duty is going. It’s not going, it’s there in enormous detail, and great prescription,” Mr Brogden said.
“There are so many requirements placed on an adviser it’s almost impossible to imagine that the sort of scandals we’ve had in the past, where consumers have lost money, could ever happen again; because these steps are so clear, and so tight, and ASIC will have the capacity to enforce them very strongly.”
…it’s almost impossible to imagine that the sort of scandals we’ve had in the past could ever happen again
He added that the changes announced by the Government were very balanced and addressed one particular consumer concern, which had become clear over the past few months:
“That was the concern that consumers had about the reintroduction of commissions, particularly in the provision of general advice, which would have manifested itself across bank branches and bank tellers.
“What the Government is doing is making it clear that they will amend the regulations to both define, and then ban commissions. That will provide a very significant amount of comfort for consumers that commissions are gone. They also break the nexus of the provision of direct remuneration for the sale of direct product. I think that’s very significant.”
The FSC was joined in its support for the reforms by the Association of Financial Advisers (AFA) and the Financial Planning Association (FPA).
AFA CEO, Brad Fox, said Senator Cormann had made it “absolutely clear” that the consumer protections provided by the best interests duty remained unchanged.
“A substantial amount of legal opinion from highly respected, experienced experts in financial services law indicated that the removal of subsection 961B(2)(g) – the so called ‘catch-all’ phrase – improves the legislation and has no material impact on the protection of consumers,” Mr Fox said. “The catch-all phrase did not add to consumer protection, it merely increased uncertainty for advisers, which meant the cost of providing advice has risen. This amendment is a sensible and pragmatic decision that will lower the cost of advice for clients.”
The AFA also welcomed the extension of the notice period to provide Fee Disclosure Statements (FDS), which has been increased from 30 to 60 days.
“The AFA raised with the government the need to amend this on the basis that it will increase the contact between advisers and their clients, as many advisers will provide the FDS in face-to-face reviews with their clients,” Mr Fox said.
We have seen blatant mistruths on the FoFA issues
But he cautioned advisers and consumers to brace for mistruths and false claims about the amendments.
“We have seen blatant mistruths, as recently as this week, on the FoFA issues and it is likely that we will see them again now. The industry super lobby will again attack these reforms because in most cases they do not benefit when members of industry super funds see a financial adviser.”
The FPA’s Mark Rantall labelled the Senator’s FoFA position as a “landmark victory” for consumers.
“The Future of Financial Advice reforms (FoFA) began as an ambitious sprint to transform our sector, became a four-year marathon bogged in detail and has ended as a smart-run victory to place the interests of all Australians first,” Mr Rantall said.
“On behalf of the professional financial planners in Australia we welcome today’s announcement by the Minister, and acknowledge that reason, common sense and a robust democratic process has each done its job.”
Mr Rantall said the FPA would now lend its weight to seeing the reforms progress into law, and encouraged its members to embrace the “benefits of working within the world’s best consumer protection framework”.
This ‘Wolf of Wall Street’ gap in the FoFA draft needed to be closed and nailed shut forever
The FPA said it was particularly pleased with the elimination of the ‘Wolf of Wall Street’ clause within general advice, with the Government taking steps to remove any possible return of commissions on investments and superannuation products.
“This gap in the FoFA draft needed to be closed and nailed shut forever by the Government. The concept of rewarding sales people on the volume sales of financial products and services in the form of embedded product commissions is a bygone practice and has no place in a professional, client-centric advice world.
“The FPA is delighted with this outcome,” Mr Rantall said.
One of the key lobby groups opposing the FoFA amendments, Industry Super Australia (ISA), issued a statement expressing its disappointment at Senator Cormann’s position. The ISA has subsequently challenged the Australian Securities and Investments Commission to investigate the issue of ‘orphan commissions’ (see: ASIC Challenged to Investigate Orphan Commissions).
