The Future of Financial Advice (FoFA) reforms are on course to deliver a future where more expensive financial advice is delivered by fewer advisers to fewer Australians.
While hailing the new financial advice legislation as the most significant in the county’s history, the Financial Services Council (FSC) said it would be a “perverse” outcome if fewer Australians received advice because of the FoFA reforms.
Concerns around best practice, scaled advice, implementation costs and potential job losses have all been put to the Parliamentary Joint Committee (PJC) inquiry over the past two days although no major changes to the draft legislation are expected at this point.
“We support 80 per cent of the reforms but small changes could still be significant,” FSC chief executive John Brogden told PPO.
“The dual objectives of the Government’s policy were to minimise conflicts and improve access to advice.
“In its current form, this legislation will achieve the first but fail to deliver the second.
“It would be a perverse outcome of FoFA if fewer Australians received advice because of these reforms.”
Brogden told the committee that modelling based on data from the industry indicates that the cost of implementing the FoFA package in full will be $700 million.
The annual cost to the industry of complying will be $375 million.
Brogden warned that many advisers would leave the industry as they find the transformation too difficult or too expensive.
“There are some that should leave this industry – those who cannot meet the new professional standards,” he said.
“However, there will be experienced well-credentialed advisers in many towns and suburbs who will make the decision to exit the industry and close their businesses.”
Brogden disputed the notion that intra-fund advice will be the solution to the increased cost of personal advice.
“It is an illusion to believe that intra-fund advice can provide the wide range of advice Australians need,” he said.
“In this debate, it seems to have been forgotten that intra-fund advice only applies to superannuation.
“It does not apply to life insurance, debt, income protection, saving for a house, education and all of the other financial decisions and challenges people face.
“Intra-fund advice is the opposite of the spirit and principles of FoFA. It is distorted, it is conflicted, it includes hidden payments, there is no way to opt-out and it will reduce access to true scalable advice.”
The Financial Planning Association (FPA) took a similar view, broadly supporting the reform package but acknowledging that it had “substantial concerns with key aspects of the reform”.
“Most notably we believe the program has not only failed to deliver on key aspects of the original objectives but also exceeded the intentions of the original objectives in other areas,” FPA chief executive Mark Rantall told the committee.
“The result is a substantial weakening of the protections that should be available to consumers and a heightened level of complexity and impracticality that will have a profound effect on the availability and cost of financial advice, whilst narrowing Australian consumers access to professional financial advice.”
He quoted figures produced by Rice Warner that adviser numbers would reduce from 15,400 to 8,600 by 2024.
The FPA is also concerned that without a regulatory approach that encourages long term trust in ‘professional advice’, developed through a wider consideration of the role played by other market participants, the FoFA reforms on their own are unlikely to achieve their key objective.
“Whilst there is likely to be an improved clarity of the conflicts in financial services and a potential improvement in quality and process at the lower end of the market, the proposals are short of the FPA’s existing and planned improvements to quality and professionalism for financial planning,” said Rantall.
