The Federal Government has announced amendments to its general advice commission exemptions under the Future of Financial Advice (FoFA) legislation, which could drastically limit the payment of commissions for general advice by reintroducing an “employee-only” rule.
This would mean financial product providers could not receive commission-based remuneration for providing general advice to consumers.
Various industry bodies representing financial planners have supported the move, as the proposed legislative changes face their next test, in the Senate.
“As the government now looks at the legislation in more detail, we’ll be keeping an eye on the process from here,” says Dante De Gori, general manager for policy and conduct, Financial Planning Association of Australia (FPA).
“There is a political process to follow in getting the changes through parliament, and we’ll be watching these closely.”
De Gori suggests that if the changes do pass through the Senate, May or June this year would be the earliest timeframe for the changes to take effect.
The FPA has been a strong advocate of removing commissions for general advice, pushing for a removal of the Abbott Government’s proposed amendment, which was announced while it was still in opposition.
“It effectively went from one extreme to the other, and that was our main concern,” says Dante De Gori, FPA’s general manager for policy and conduct.
“We understand general advice is not personal advice…these salaried employees aren’t giving personal advice, but we don’t accept that commissions should be permissible.”
De Gori points out that while the FPA was happy with the proposed changes, “from our perspective, we would’ve preferred they ban commissions altogether.” However, he concedes this would throw up other difficulties in requiring a legal definition of what these commissions are.
He says the FPA would like to see the government tighten the restrictions on commissions for general advice further.
“If you’re going to proceed with this, you’ve got to make it restrictive at a product level too, at removing commissions altogether and introducing legislatory relief.”
With a decidedly negative assessment of the proposed changes, David Whiteley, chief executive of Industry Super Australia, says they would, “take the financial advice industry back to the dark ages.”
“The banks and some elements of the financial advice industry have lobbied to dilute the best interest test,” he says.
“They will reintroduce eight different types of conflicted remuneration and mean the best interest duty can be met without clients’ best interests being considered and allow advisers to receive ongoing fees without providing ongoing advice.”
“I’ve not yet met a member of the business community or a consumer that has come to me and demanded a change to the best interest test,” adds Whiteley, suggesting it is instead being driven by parties with vested interests.
The SMSF Professionals’ Association of Australia (SPAA) issued a more positive response.
“Removing the best interest duty catch-all provision will increase certainty and reduce costs for advisors, with these benefits flowing on to consumers of financial advice,” says Andrea Slattery, chief executive officer of SPAA.
However, Slattery says SPAA believes the Government’s amendments allowing an exemption for general advice from the ban on conflicted remuneration is still too generous.
“We believe the best consumer outcomes are achieved independently from links with product remuneration that can incentivise the sale of products over the provision of objective, quality advice in the genuine interest of the client.
“The best approach, in our opinion, is an environment where an advisor’s remuneration is aligned with providing high quality advice without the influence of commissions.”
The Australian Bankers Association (ABA) unreservedly welcomed the changes. “The limited exemption for general advice is a sensible balance and will ensure that banks can continue to provide free, simple and general advice,” says Steven Münchenberg, chief executive of the ABA.
“We also commend the Government for providing the industry with certainty and clarity [in allowing] bank tellers and bank specialists to continue to provide information and advice on basic, retail banking products.”
