The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, says planners who “take up the FoFA reform baton with open-minded gusto will…see a commensurate increase in demand for your services”.
Shorten told Financial Planning Association (FPA) members at a lunch in Sydney that by embracing the Future of Financial Advice (FoFA) reforms, planning businesses would also experience an increase in turnover and profitability.
“Sure FoFA is primarily for consumers, but it’s also a growth strategy for your profession,” he said.
Shorten referred to 2007 research conducted by Galaxy, commissioned by the FPA, which found that one of the main reasons people don’t seek advice is the cost.
“Evidence the fact that only 7 per cent of Australians aged 16-24, and only 21 percent of those in the 25-34 year age group, access financial advice,” Shorten said.
“This is why the Gillard Government is firmly committed to ensuring that Australians have greater access to affordable financial advice.
“One of the guiding principles of the Future of Financial Advice reforms is that financial advice should be affordable for the very people who would most benefit from it.
“This will allow advisers to expand their existing customer base, reaching younger people and those with less complex needs. Ultimately, these reforms will encourage more Australians to seek financial advice and open up new revenue streams for financial planners.”
Shorten said he was committed to establishing a “level playing field so that all financial advisers can provide consumers with simple or limited advice, both inside and outside superannuation”.
He said unlike the Financial Services Reform Act 2001 (FSR), FoFA “will create a new market for financial advice, by expanding the provision of low-cost, simple or limited advice”.
“The current reforms represent a shift away from some of the principles that underpinned FSR,” Shorten said.
The chairman of the FPA, Matthew Rowe, asked Shorten to support the association’s proposal that “the time has come for the term ‘financial planner’ to be enshrined under the law”.
“There is a glaring anomaly in our system,” Rowe said.
“Under the Corporations Act [2001, Section 923B], there is no constraint on individuals calling themselves financial planners irrespective of their training, competence and even licensing.
“However, the current legislation does [enshrine] the term ‘stock broker’, ‘futures broker’, ‘insurance broker’, ‘general insurance broker’ and ‘life insurance broker’.
“Why do such terms carry more weight under the law than that of financial planning?” he said.
“A lack of restrictions on the use of the term ‘financial planner’, we believe, is among other things, a significant gap in consumer protection. It leaves trusting consumers open to influence by unprofessional and inappropriately qualified individuals calling themselves financial planners.
“Australians deserve to have the term ‘financial planner’ mandated as a professional and all financial planners must be a member of an approved professional association.”
Shorten was asked whether he would consider advice to be tax deductible.
“That’s not on the table to begin with and wouldn’t want you to think [that]. We have no plans at this stage,” he said.
Concerns involving excess contribution caps and penalties were also voiced by FPA members.
“I think one solution…is for people over [the age of] 50 keeping the concessional caps,” Shorten said.
“The legislation currently has them going to $25,000. We want to keep it at $50,000. I have asked Treasury for some further reforms in that area.
“We are looking at some options. I don’t want to get people’s hopes up but…I get that there is a problem.
“As your superannuation Minister, I am conscious and I know Treasury is, of excess contributions taxes having a range of effects where people are getting caught up in a system, quite often not of their own making. We’d be foolish not to look at what options there are, not to remove caps or make some radical departure, but try to apply some common sense.”
Shorten also responded to the threat of industry funds to financial businesses.
“You can peer over the fence and worry that industry funds are killing your business, and whilst you do that, you’ll miss a number of other issues,” he said.
“I think there’s some myths about the level of intra-fund advice that gets cross-subsidised. Our view is that having a MySuper license will make it a lot harder for everyone to provide…cross-subsidies and products that they can give to people.
“I don’t know how many of you have been to a retirement planning seminar by an industry fund but it’s pretty general advice and I don’t think its advice that’s into the depth that many of you would provide individuals.”
The industry is expecting to see draft legislation based on FoFA as early as the end of April.
Very eloquently put Tony…I was naive about the exact level of influence that the Industry Funds have over this labour government…well now I know. A couple of points:
1) The banning of commissions on insurance through super is imposed to remove any conflicts of interest supposedly, then why not ban it outside of super too? Where did the “conflicts of interest” suddenly dissapear too?
2) The defense of the Industry Funds network is such an obscene insult. ie: Don’t concern yourselves with the fact that we have provided them with an exemption to fudiciary duty.
3) Opt-in every 2 years is laughable! I see my clients at least once a year and when I do I reiterate the costs, just like I did in $ and % terms in their initial SOA.
4) Are these changes going to save us from the next Storm or Westpoint? As professional as they claim to be, are there no unscrupulous Lawyers? No delinquent Doctors? You cannot regulate integrity.
The Minister is definitely deluded!
The lobby group for the Industry Funds have supplied the Gillard Labour Government with a complete set of reform policies. The Industry Fund policies include annual opt-in, banning third party commission payments, and of course legislated fiduciary duty.
Sadly the Industry Funds are so self deluded, that they have ignored internal evidence that contradicts their own political push for fee-for-service, because for many years the Industry Funds themselves have proven that fee-for-service just doesn’t work.
Despite providing Financial Planning services for 15 years on a fee-for-service basis the Industry Funds advisor network remains insignificantly small. The largest Industry Fund in NSW, First State Super, has just two Financial Planners in Sydney!
This is basically due to a lack of general demand for fee-for-service advice, which average and low net worth consumers basically don’t like or can’t afford. Also the Industry Funds are hugely inefficient at providing advice, despite subsidisation and at best they have used fee-for-service as a cherry-picking service focused on retaining their HNW members, whilst failing to assist their average low income members.
Another reason for this business failure is because the primary skill set of the Industry Funds is politics, not business, which is not surprising when you take the commercially accountability out of any organisation.
This business failure is no doubt behind the recent push for intra-fund advice, which is basically a legislative carve out allowing the Industry funds to provide subsidised product related advice without regulatory oversight.
And the Minister thinks this pathetic mess will create demand for advice?
With respects to Matthew Rowes statment”There is a glaring anomaly in our system”. I agree for example lawyers work in the legal proffesion ,doctors work in the medical profession and internationally advisors work in the Advice profession It follows then that the profession should be reconised as Financial Advisors [american and english splelling]as financial planning is one of the things that an Advisor does.it would not be appropriate to call the Profession Plannersanymore than calling people in the legal profession conveyers.
Bill Shorten you are correct in your statement that people do not seek financial advice due to the cost. This is due to the fact that in most cases the value of financial advice builds over time so most clients are unwilling to pay upfront for advice. However your statement that the FOFA reforms will make advice more affordable is an insult to my intelligence. To provide legally compliant advice I have to complete a fact find appointment, spend time to formulate an appropriate strategy, research the products that will be recommended, write a Statement of Advice (SoA), meet the client again to present the SoA, assist the client to complete application forms, implement the advice and follow up with fund managers/insurance companies. Most people cannot or are unwilling to pay for the time taken to produce compliant financial advice upfront so in the majority of cases advisers amortise this cost over time by receiving an ongoing remuneration. Most clients are happy to pay for advice this way because the value of financial advice builds over time so a client is more comfortable with an adviser remuneration package that aligns more evenly with the value received.
Under the proposed FOFA reforms you and your union masters are going to inflict the financial planning industry with laws such as an “annual opt in” that all clients must sign otherwise an adviser/client relationship is cancelled. This means I will have no choice other than to charge upfront for financial advice which will deter the majority of people from seeking advice thus achieving exactly the opposite to your claim that more people will seek advice.
The FOFA reforms are not focused on providing a better outcome for the consumer because most consumers will be worse off. Rather this reform package is not reform at all, it is anti competitive bullying pushed by the union movement with the objective to crush the financial planning industry and deliver an unfair advantage to industry super funds so these union run funds can have a dominate position in the market place.
He is either deluded or knowingly lying