The Assistant Treasurer, Senator Arthur Sinodinos, says the government has ditched the so-called “safe harbour” step in the Future of Financial Advice (FoFA) legislation because of its potential to undermine the other six steps underpinning the best interests duty and to make financial planners too risk-averse in the advice provided to clients.
“The best interests duty, where there were six steps which could help you define how you meet that test and [whether] you are putting the interests of the client before your own, there was that catch-all [s961B(2)(g)],” Sinodinos told a Value Alliance event last week.
“We felt from talking to the industry it was adding too much uncertainty and actually undercutting the whole process of meeting the other six. You cannot have a situation where people become so risk-averse in giving advice that you are not appropriately balancing the risks and returns for your clients.
“So we needed to make sure there was a robustness to the advice. So we have sent out the consultation yesterday. (But) we are doing some stuff by regulation so we get it out as soon as possible.”
Sinodinos said the government was aiming to “retain the essence” of the original FoFA reforms while ensuring access to high-quality advice remains affordable. He said the government had “had some shellacking” over the proposed changes.
“Some have said we are throwing out the baby with the bath water; they are concerned we are watering down the consumer protections too much,” Sinodinos said.
“I do not believe that. In doing what we are doing we are seeking to strike a balance, retain the essence of FoFA and the protections that were built in, by getting rid of unnecessary red tape and also to remove provisions that might inhibit the provision of lower cost affordable advice. Because the last thing we wanted – and this is where the rubber hits the road – was another situation where we raising the costs of providing advice for Australians.”
Sinodinos said the government’s aim is to make sure as many people as possible are able to access high-quality, affordable advice. There is a danger, he said, that the FoFA legislation without amendments could raise the cost of advice beyond the reach of too many people.
“There are too many Australians taking decisions for themselves in an ill-informed way, and that is even people who think they know what they are doing,” he said.
“Believe me, until you get someone sitting down with you and actually going things through with you and provoking the right sorts of questions, I don’t think you are going to come to the right decisions.”
The Value Alliance is a joint venture between financial services public relations businesses 64 Media and Pritchitt Partners.
Reporting by David Rowley