If it feels like you are trapped in FoFA Groundhog Day, you are. The Future of Financial Advice (FoFA) debate has been going since the launch of the Ripoll Inquiry in early 2009. Given that we are almost at the end of this journey it’s worth reflecting on the purpose of this undertaking in the hope that we learn from the process and also ensure the best possible outcomes.
The strategic intent of FoFA was ostensibly to increase access to advice (make it cheaper) whilst making it more transparent (reduce or eliminate the conflicts). The Association of Financial Advisers (AFA) has translated this into a goal to lift the numbers of Australians in an ongoing advice relationship from the current two in 10 to three in 10 by 2014.
The AFA, like all key players in the market, supports this intent because advice is a key differentiator in the future prosperity of Australia. While 20 per cent of Australians receive the benefits of financial advice, the rest are missing out. Worse still, with an ageing, under-insured, under-saved and under-advised population, it is taxpayers who ultimately foot the welfare bill – currently around $120 billion a year.
The AFA believes that while the overall FoFA strategic intent is honourable, the execution is not. The game plan has been hijacked by sectors looking after their own political interests; groups which see FoFA as a way to weaken the role of advice and the role of financial advisers while strengthening their own.
As Sun-Herald journalist David Potts recently observed, FoFA “will come in several legislative instalments, naturally containing more regulations and red tape [and will give] union-run industry super funds a leg up”.
FoFA has become a protracted battle, a war of attrition, fought sometimes on the key issues but often on the spurious and inconsequential. In this regard, as Bernie Ripoll recently observed, FoFA risks becoming a lost opportunity.
There is perhaps still a slim chance that FoFA can deliver, that it will better define what constitutes financial advice; that it will be drafted to protect consumers, increase consumer confidence and understanding in financial advice and increase their access to affordable advice. As drafted however, FoFA fails all these strategic aims.
The FoFA process has become a clarion call for the advisory market-place. Advisers and licensees have not remained silent; they have instead grasped the opportunity. The AFA grassroots lobbying campaign is a great example of this. The AFA leadership team held personal meetings with politicians of all persuasion and with Government and regulatory officials. Advisers and licensees were mobilised and many visited their local Members of Parliament (MPs).
Politicians have remarked that they have seen more action on FoFA than on any other recent issue. Minister Shorten also acknowledged this, remarking that his rethinking of some of the issues, such as risk remuneration inside super, was influenced by discussions with Bernie Ripoll (Oxley) & Deb O’Neill (Roberston). These two MPs were visited by many concerned AFA members.
The AFA’s key FoFA concern is around how consumers fare from the legislation. Our view is that the FoFA draft legislation 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. It is unconscionable that wholesale changes are being proposed to the management of and advice on Australia’s largest collective asset – superannuation savings – without independent testing as to the impact.
While some of the more contentious issues have been improved upon, opt in and the banning of commissions on group risk within superannuation – both of which we believe represent bad policy – remain.
The AFA therefore considers it a duty to hold the Government accountable to the honourable intentions of FoFA and will remain vigilant on all parts of the proposed legislation. We urge advisers and licensees to continue to debate FoFA with politicians and regulators.
We have all invested significantly in educating Canberra on the valuable role we play in the lives of clients and in the future of the nation. We must now leverage this investment by ensuring that financial advisers are viewed as a key group that can improve the nation’s prosperity and economic future.
Richard Klipin is chief executive officer of the Association of Financial Advisers (AFA).