Chan & Naylor: Proposed FoFA reforms will harm competition and consumer choice

With the Government remaining determined to see through its Future of Financial Advice (FoFA) reforms by lumping the issue in with thousands of other regulatory cuts, Australia’s fastest growing accounting firm Chan & Naylor warns that any proposed simplification of the legislation will harm competition and choice for those that the legislation was originally intended to help: Australian consumers.

FoFA, which was originally established to provide the financial services sector with greater clarity, has been described by the new Government as too complex and certain key areas of the legislation are now likely to be removed if they pass in the Senate in June.

“The intent of FoFA was always to protect the end user by ensuring transparency, responsibility and a new environment in the financial services sector to promote best practice at all times,” said David Hasib, a Partner at Chan & Naylor Wealth Planning. “Whilst the devil was always going to be in the detail, it certainly sent a clear message from the regulators that had the industry’s attention.”

Mr. Hasib believes that the Government’s proposed reforms have inadvertently played into the hands of large institutions as the detail, environmental uncertainty and the ever increasing costs associated with FoFA has strangled the independent dealers who have been left with no financial products to supplement their revenue and a growing cost of doing business to manage.

As a direct result a number of Australian financial institutions are calling for the removal of the need for advisers to consider products outside an existing house ‘approved list’ before making recommendations.

“Ironically this has left the very people that FoFA aimed to help now seeking financial advice from those institutions that could ‘clip the ticket’ multiple times,” said Mr. Hasib.

Whilst acknowledging that FoFA in its original form was complex, Mr. Hasib contends that the FoFA wind backs proposed by the Coalition should only be welcomed provided the original intent of such reforms remain in the spotlight.

For this reason he argues that Product Manufacturers, who own and control approximately, 85% of all Dealer Groups, should be open to greater scrutiny.

“Greater transparency and vertical integration make good commercial sense. Industry funds conform in this way as do other sectors such as retail where the significant players such as Coles and Woolworths with their fuel cards are required to disclose their commercial interests beyond the supermarket,” said Mr. Hasib, who believes that a truly open market without undisclosed commercial arrangements is in the best interests of all parties and will help resolve the divisive issue of conflicted remuneration whilst drawing advisers out of the firing line.