Five key gaps remain in the regulatory framework for financial planners in Australia, according to the Financial Planning Association of Australia (FPA) white paper, The Future Profession, released yesterday.
The paper was released following the FPA’s appearance at the Senate Standing Committee on Economics inquiry into the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014.
The first day of hearings yeaterday included appearances by the Association of Financial Advisers (AFA), CHOICE, the FPA, the Institute of Chartered Accountants, CPA Australia and Industry Super Australia (ISA). The committee is charged with inquiring into and reporting on the government’s proposed amendments to the Future of Financial Advice (FoFA) legislation, and is due to report on June 16.
Some fine tuning
The AFA used its appearance to support the proposed amendments, and to express its opposition to the general advice exemption. It said the exemption may need “some fine-tuning”, but its effect should not be to facilitate “a return to commission for advisers”.
In its white paper the FPA said the regulatory framework for financial planners in Australia is not “fundamentally flawed, but it does require fine-tuning to address certain deficiencies”.
“Internationally, Australia’s regulatory approach is regarded as one of the most comprehensive systems of financial services regulation in the world.
Notwithstanding these qualities, there remain some deficiencies or ‘gaps’.”
These include:
• The entry requirements for providers of financial advice are too low, which has led to some incompetent and ill-equipped advisers being able to provide financial advice on sophisticated and risky products;
• The lack of clear differentiation between financial planners, and ‘product advisers’ and providers of general advice, confuses and misleads consumers in terms of services offered and standards of professionalism;
• The absence of a mandatory professional framework to underpin the difference between financial planners and other providers of financial product advice, the lack of which enables some financial intermediaries to opt out of additional commitments to the detriment of their clients, especially if they find them too expensive or difficult to meet.;
• The lack of a regulatory framework to better support professional bodies in a co-regulatory structure; and
• The absence of direct policy measures to support consumer access to affordable financial advice.
Ten-point plan
The FPA yesterday released its 10-point plan to address these perceived gaps. The plan was foreshadowed on Tuesday by FPA chairman Matthew Rowe in an article written exclusively for Professional Planner.
Meanwhile, Industry Super Australia (ISA) has released a report commissioned from Rice Warner Actuaries, Consumer costs of FoFA amendments, that suggests the net effect of the proposed amendments to FoFA will in fact cost consumers more, contrary to claims from sectors of the industry, and to the government’s aims, of making financial planning more accessible and more affordable for more people.
Impact on consumers
The ISA report says a regulatory impact statement (RIS) released by Treasury in March estimates the potential savings to the financial planning industry from the proposed FoFA amendments, but did not estimate the impact on consumers.
“We estimate that the proposed changes will add approximately $533 million per year to costs for consumers with some $313 million per year being due to the removal of the opt-in provisions and the extension of grandfathering for existing commission arrangements,” ISA says.
