Shadow Treasurer Joe Hockey has called for the Gillard Government’s Future of Financial Advice (FoFA) reforms to be withdrawn pending a “full and compliant regulatory statement”.
The Corporations Amendment (Future of Financial Advice) Bill 2011 and Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 belatedly arrived before the House of Representatives last night (Monday, 19 March) but faced an immediate challenge from Hockey and the Opposition.
The FoFA reforms were scheduled to be debated by parliament last week but a congested program and procedural bickering between the Government and Opposition delayed the introduction.
While Financial Services Minister Bill Shorten’s office has committed itself to releasing a cost analysis of the proposed legislative changes, the timeframe for this remains vague.
A request by PPO for clarity from the Minister’s office had not received a response at the time of publication.
When debate concluded at 8pm last night, the House of Representatives had heard eight speakers.
A selection of quotes from the speakers:
“Perhaps the most damning aspect of this legislation is that it fails the government’s own tests for simplicity, transparency and regulatory impact,” said Member for North Sydney, Joe Hockey. “The executive director of the government’s own Office of Best Practice Regulation, Jason McNamara, said the impact analysis accompanying the legislation ‘was not at a standard that we would pass’.”
“As people know, you cannot serve two masters and sometimes when giving advice that is going to remunerate people there can be a potential for conflict,” said the Member for Moreton, Graham Perrett. “You simply cannot have a situation where financial advisers are giving apparently independent advice and, all along, pocketing benefits from the advice that they give.”
“The vast majority of financial planners want to take you by the hand and walk you towards a bright future and a splendid retirement,” said the Member for Herbert, Ewen Jones. “The Storm model could never be assumed to have that in mind. My concern is that parts of this bill are unnecessarily burdensome on businesses and that this will impact on their ability to provide affordable financial advice.”
The new measures outlined in this bill will promote the active renewal by the client of ongoing fees for advice, with opportunities for them to consider whether they are receiving value for money,” said the Member for Canberra, Gai Brodtmann. “It will also assist to disengage clients from paying ongoing fees that they should not be paying.”
“It is important that these financial advice reforms are properly considered so that we do not create a situation where the big players in the industry gain strength and power at the expense of the small to medium-sized financial planning businesses that, by and large, provide the majority of the independent, high-quality financial planning advice to the Australian community,” said the Member for Forde, Bert van Manen. “It is the small financial planning practices that are built up over 20 or 30 years that are the true professionals and pioneers in this industry.”
“Again, it is trying to balance out those clients who are already in the system against the new relationships that will be set up,” said the Member for Chifley, Ed Husic. “I am assured that these bills will have minimal financial impact on financial advisers. Of course, where an adviser has no ongoing contact with the client there will be a small administrative cost to have the client renew their arrangement with the adviser. There is obviously no way you can get around that.”
“All this opt-in measure does is add another level of administrative burden -something which the members opposite always seem eager to do – for questionable benefit,” said the Member for Ryan, Jane Prentice. “For example, this bill creates a government mandated maximum time frame, during which consumers have 30 days to submit their opt-in agreement, whether it be to enter, renew or revise an agreement. Many Australians may inadvertently fail to comply with the government mandated maximum time frame …”
“It is important that we as legislators ensure that the legal framework surrounding this industry is robust and provides the best standards of consumer protection possible,” said the Member for Throsby, Stephen Jones. “We make absolutely no apology for bringing forward legislation, like these bills, that puts the interests of the consumers first.”
Advisers that have a good value proposition and service their clients have nothing to fear from FoFA and Opt-In. We started complying 12 months ago and our clients already re-engage our services now.
I strongly agree that no-one should be asked to pay for services they are not receiving.
Advisers cannot meet the service needs of more than 75 to 100 clients and do the job effectively.
We tell our advisers, you own a gold mine and you have to work on that mine and resist the temptation to go to the creek to fossick for new clients. Our focus is always on our existing clients.
The cost of Opt-In is virtually nothing, it is just an additional paragraph in your re-engagement review which you should be doing anyway.
What many advisers are saying between the lines is that they don’t do reviews and they don’t see their clients on a regular basis. They have far too many clients to effectively service them. That is their real fear.
William Mills
Price Financial Intelligence Pty Ltd
Thornleigh NSW
As an advisory firm that has practicing annual opt-in since we established the firm in 2004 we do not see why the majority of the industry is against the concept of opt-in as well as annual fee disclosure.
I am sure that most advisers would themselves not accept paying an ongoing fee or commission and receiving nothing in return. Unfortunately there are some advisers who think that this is OK – ie to be paid to do nothing.
Those that are complaining the most are those we would suggest who do not have an engagement with their clients (client book)…for those advisers who are actively engaging with their clients, opt-in will not be an issue for them…
Of course there will be additional cost for advisers who do not have an engagement with their clients…in some cases the level of commission / fee being received from the individual client would not make it worth while – do advisers want these types of clients? – unless able to receive a commission for doing nothing ? if the answer is no – sack the client or offer them services and advice and get paid for it…seems logical to me.
When FSR was introduced this was the end of the world….but most advisers survived …FOFA is simply a way to improve the advice profession and move it from a selling culture to an advice culture…
Good luck to all participants.
It really amazes me when i see quotes defending the $11 cost addition to client servicing, have these people ever ran a financial planning buisness?
I dont agree with Jim S comment “It’s because of rules/compliance/guidelines in the past like FSR, like accreditation and other imposed developments that have contributed to as as will FoFA” as the reason why advisers do the right thing, we do this because we actually care about our clients.
We are the most over regulated industry in Australia, can we not just be left to get on with our job, satisfy our clients needs (ethically) and run a business??
Keep the politician and do-gooders out of it as they havent got a clue (even Shorten).
Jim
$11/client additional cost – are you dreaming! This is two cups of coffee. What can you do in your office for $11? How many invoices of $11 do you send out to your client? Do you actually run a business. Do you know the cost of sending a letter? Postage 55c, letter, printing etc, $5 before you know it plus admin labour etc plus your time to sign and check the letter. Then follow up to get it signed and returned, filing – even electronic filing. How many telephone calls to client to follow up and also spend 10 minutes of valuable time explaining what it means to some of the clients. This is dead time when you could have been doing productive work! So what is the loss of fees due to time spent administering the whole process. $11 is the cheapest estimate and would be for the large institutions where they could do batches of 1000’s
Right now this government is making changes for the sake of making changes. Hey just a couple of weeks ago Julia Gillard called for suggestions on how to cut red tape, my suggestion – fire Bill Shorten!
Maybe if we outsource all our services to India we maybe able to get this down?
It’s funny….all this talk about “administration burden”. Any adviser who is actually doing their job properly already has their staff doing a lot of admin and paper pushing on a daily basis.
One needs to question whether the people who are kicking and screaming about the “admin burden” are the sames one sitting back doing stuff all, getting paid a trail commission on a book of clients that they haven’t spoken to for years.
These changes make sense and will create more transparency and trust in our profession in time.
These changes impact most on younger advisers yet they’re not the ones that seem to be crying a river of tears over an extra signature every 24 months.
Whoever is in charge of getting FoFA through parliament , get on with it!
I just can’t be bothered following this trash piece of legislation thorugh to its conclusion, so this will be my last coment about the matter in writing or in discussions with others in the industry .
At the end of the day , someone will pop us an email and tell us to do this, and do that ,and we will do it .
We might disagree or agree with this poorly crafted piece of legislation , each to his own . The opposition will repeal or amend some of the legislation if it takes office in 18 months .
So do us all a favour and put an end to it . Please
We are busy – all the time , and can’t be shagged anymore worrying about when the circus comes town.
How does making changes that most costumers don’t even want, and that will end up meaning they have to pay more to get good advice, put the interests of consumers first?
The vast majority of advisers already put the interests of their clients first so all of this extra red tape will not change that. It will just put fees up, and mean we have time to see fewer people.
While we are at with changing stuff to put consumers first, how about we
* Change how doctors get paid so that they dont churn us over in two minutes but charge medicare for a 10 minute consult.
* monitor lawyers fees – $50 to read a fax – really !!
* have Harvey Norman, car dealers and every other brokerage / bonus payer disclose that up front
Adding all this extra red tape and compliance just bogs down those of doing the right thing. Those doing the wrong thing don’t abide by the rules so changing them doesn’t affect them much at all.
Whenever something doesnt quite work in Australia or a certain group breaks the rules, we change the rules and affect everybody instead of actually punishing the groups / people doing the wrong thing. About time that changed !!
Mike, you raise good points.
Firstly, making changes that customers don’t even want? True. Your active clients don’t want to opt-in every second year (they won’t under grandfathering but I’m assuming your new ones?). But what about the industry INactive clients? – I reckon ONCE THEY UNDERSTAND what’s been going on for years, they’ll want the changes as it relieves them of paying for advice they never get.
Secondly, …end up meaning they have to pay more to get good advice? Maybe, maybe not. Do you have to raise your prices because of opt-in? Is that by the $11 per client per year estimated by Rice Warner acturaries? $11? Really? Filling up the car will go up more than that in the next couple of months. Like the road tax levied by governments on fuel to put back into the better highway system, it’s a relatively easy price increase to fund greater transparency for all the inactive advice clients paying for something they never get.
Thirdly…the majority of advisers already put the interests of their clients first – Spot on. It’s because of rules/compliance/guidelines in the past like FSR, like accreditation and other imposed developments that have contributed to as as will FoFA.
Lastly… it will just put fees up meaning that we have time to see fewer people? If you have to raise your annual fee for every client by Rice Warner’s estimated $11, that will mean you have to see fewer clients. I reckon you can still continune to see the same number Mike who’ll all opt-in as you continue to provide good advice.
I’m sorry if I have mis-understood your points.
Jim Stackpool.