No room and no reason to compromise consumer protection on financial advice

Taxpayers Australia today condemned the proposals advocated by the government, and by some sections of the financial services industry, to water down consumer protections made via the Future of Financial Advice (FOFA) reforms.

The proposals cut to the core of professional conduct and the trust that consumers can expect of professional financial planners. Included in the proposed changes to FOFA is the relaxing of that part of the regime that requires financial advisers to act in their clients’ best interest. The proposed reforms would also remove the “opt-in” requirement, which requires financial advisers to contact fee-paying clients every two years to renew their contracts.

What is at stake in the long term are the very reputations that the best firms in financial markets have worked long and hard to maintain, with the risk of losing goodwill in the community and the regard assigned to genuine professionals.

An individual’s financial health cannot be left in the hands of advisers who act more to their own vested interests rather than those of their client.  For the FOFA reforms, a comparison can be made to a doctor who is financially rewarded by a drug company for prescribing that company’s brand of aspirin for all manner of diseases or even broken bones. Planners who are enthusiastic about the proposed FOFA wind-back had better dust off their garish checked suits, because the market will most likely trust the industry with their financial well being as much as they’d trust a used car salesman.

Taxpayers Australia spokesman Mark Chapman said: “These proposals aren’t about cutting waste or eliminating red tape, they’re about removing the fundamental right of consumers not to be ripped off. There is no possible upside to consumers in these proposals and plenty of downsides.”

“The basic right to be properly advised and to be automatically told how much of your investment is going into your chosen product and how much into the pocket of your adviser in fees and charges really shouldn’t be up for discussion in 2014,” Chapman said.  “By going ahead with these proposals, the Assistant Treasurer is laying the groundwork for the next financial mis-selling scandal.”

That the financial planning industry is looking at a future without a robust best interests duty puts at real risk the regard that finance professionals would hope to earn from consumers, and will be a retrograde step for an industry that has in the past struggled to avoid being  tainted by excesses of greediness and disregard for ordinary Australians. The industry has made some strong improvements in their reputational stakes, which are in imminent danger of being lost through these latest proposals.

If we want to assign to the “bad old days” examples of poor financial advice, which disproportionately damages the reputation of the whole industry, then a rigorous best interests duty must remain part of the regulatory framework. A client-focused culture – which many professional financial planners already subscribe to – must be maintained as the minimum standard that consumers can expect of anyone calling themselves a financial planner.