The Senate Economics Committee handed down its report into the Future of Financial Advice (FoFA) reforms on Monday night, prompting support and dissension from leading industry groups and the government opposition respectively.
Speaking from the cons perspective, Bernie Ripoll, Shadow Minister for Financial Services and Superannuation, says that in general terms he was “very pleased the Government was forced into the position that they needed an inquiry into their own legislation”.
“But we absolutely will not support the government taking a wrecking ball to what are very good and sensible consumer protection standards,” he says.
“I’m happy this points the way forward…what it clearly does is show the danger in watering down or weakening best interests provisions, the banning of commissions or any of the other provisions at the core of the reforms in the first place.”
Referring to recent meetings he had with people who had lost their life savings through the actions of a “scamster”, Ripoll says he is “even more convinced that the way forward is to have continual improvement, higher education standards, better quality advice, but it certainly isn’t to rip out the guts of FoFA”.
David Whiteley, chief executive of Industry Super Australia, is similarly opposed to the committee’s report.
“Our concern is that, if these changes were to go through, financial advice and product sales would be inseparable, consumer confidence in financial planners would be even further reduced,” Whiteley says.
“And quite frankly, what we have in place now are some ironclad rules that require financial planners to act in clients’ best interests and ban kickbacks
“These proposals will lead to caveats and loopholes,” Whiteley says. He believes that FoFA in its current form needs more time to deliver benefits, suggesting a better approach would be to “shelve any changes and have a review in a few years.”
“That would be the prudent course of action, it would be a much less risky proposition than removing consumer protections…whilst the regulator is still cleaning up some of the scandals of recent years.”
A lawyer’s perspective
Responding to some of these concerns, Richard Batten, partner at Minter Ellison, says that while he understands the comparison that some are drawing between the ongoing review into the actions of ASIC and Commonwealth Financial Planning (CFPL) and the FoFA reforms, they’re not necessarily relevant.
“I understand the perspective, but I don’t know that they should be linked in that way,” Batten says.
“The things that have occurred in the past, including the CFPL issue, were very much under the old legislation. There’s no real need to therefore think we need to wait for the outcome of that enquiry [or] to think FoFA should be designed to remedy all those sorts of things.”
Batten believes the FoFA amendment bill supports the push towards improving the accessibility and availability of good quality financial advice.
“I believe that’s the case,” he says.
“Mainly because I believe that some of the matters being addressed in the bill and regulations bring added clarification and certainty.
“To the extent that it makes the legislation work more effectively, and helps people understand how it works properly…by doing that it facilitates certainty and therefore the ability for the industry to supply services.
“I think it can assist in increasing the availability of financial advice. A regulatory environment where the regulations are clear and understood of itself encourages innovation and efficiency.”
Industry associations respond
The Financial Planning Association (FPA) also welcomes the findings of the Senate Committee. Mark Rantall, chief executive of the FPA, says the report acknowledges the FPA’s concerns with the possible reintroduction of commissions.
“We are pleased to see that the FPA submissions made to this Inquiry, particularly the FPA’s 10 point plan, found a receptive ear with the Senate Committee members as reflected in the main report as well as the dissenting report,” Rantall says.
The Association of Financial Advisers (AFA) is also supportive of the report tabled by the Senate Committee. Acknowledging the differing points of view FoFA had garnered, Brad Fox, CEO of the AFA, believes this was an important and necessary process for the financial advice profession.
Referring specifically to the debate about commissions on general advice and the proposal for a general advice exemption, Fox says: “We agree with the thinking of the Senate Committee on this and encourage the Government to ensure that benefits payable on the provision of general advice are not structured as commissions.”
“This should not prevent a sensible model based upon employee bonuses. We do not believe that financial advisers who provide personal advice should be able to access the general advice exemption,” he says.
