The second wave of Future of Financial Advice (FoFA) reforms have been met with cautious optimism by financial planners after the legislation was tabled in Parliament this morning.
One senior policy expert said the current incantation of the FoFA Tranche two reforms were “greatly improved from the draft … this is something we can work with”.
However, while both the Bill and explanatory memorandum appear to have taken heed of the industry’s position against retrospective reform, some elements of transition and grandfathering arrangements have been late additions to the legislation.
Tranche two includes the banning of conflicted remuneration payments that may influence financial advice.
Also included in the legislation are amendments to the best interest duty with the aim of encouraging actual behavioural and motivational change rather than a tick-a-box style of compliance.
The Financial Planning Association (FPA) noted the government’s effort to improve the quality and availability of financial advice for all consumers.
“The FPA has been in communication with the government over the past two years to ensure FoFA works for both financial planners and consumers,” said Mark Rantall, CEO of the FPA.
“FoFA is an initiative developed to improve transparency and access to financial advice to safeguard the financial future of all Australians. We released our remuneration policy on banning investment commissions to members in 2009, which laid the groundwork for transparent payments, giving our members a head-start for the transition.”
The FPA welcomed the banning of investment commissions and other conflicted remuneration, in line with its own remuneration policy due to commence on 1 July 2012.
Recent research conducted by Investment Trends, shows that over half of CFP holders are already deriving their revenue from fees, rather than commissions, compared to the industry average of 43 per cent.
“It is clear that FPA members are leading the profession in these transitions and we welcome the government initiatives to encourage this with all financial planners,” Rantall said.
The FPA has also outlined areas of the reforms that have raised concern, including some measures within banning the soft dollar benefits and the definition of Group Risk.
“The FPA supports the majority of the measures in banning soft dollar benefits, and they mirror existing FPA standards set by an industry benchmark. However we do not agree that ‘location’ should be a factor – the FPA believes that if a financial planner can participate in a legitimate professional development conference, it should be irrespective of whether it is in Australian or overseas,” said Rantall.
“The FPA has a concern with the definition of Group Risk and believe the current definition within the legislation could cause some unintended consequences and costs for consumers as a result.”
The Financial Product Association applauds the government’s effort to improve the quality and availability of financial advice for all consumers, whilst ignoring the fact that the reforms will achieve no such thing. The only thing these reforms achieve is the increased aggregation of product and advice.