Industry groups upbeat as government endorses FoFA changes

The Federal Government’s decision to accept the Senate Economics Legislation Committee’s recommendations on the Future of Financial Advice (FoFA) amendments has drawn a mixed reaction from industry stakeholders.

Set to take effect from July 1, 2014, and implemented through regulation rather than legislation, the changes have been welcomed by financial planning lobby groups and condemned by the  opposition and others.

One of the major supporters of the changes is the Financial Planning Association (FPA), which is particularly happy to see the general advice exemption and banning of upfront commissions.

The FPA’s chief executive officer, Mark Rantall, says it is significant that the reforms will be implemented via regulation rather than legislation.

“Time has run out on these reforms, we’ve been living with this uncertainty for four years, it’s time to get clarity,” he says.

“We now see that there’s no impediment to bringing FoFA into law, and will put our full weight behind it. We call on all crossbench members to now support this change into being.”

Some commentators, such as Industry Super Australia and the shadow finance minister, suggest that the government’s final decision on FoFA should be delayed until after the completion of a current Senate inquiry into Commonwealth Financial Planning (CFPL) and the Australian Securities and Investment Commission (ASIC). That inquiry is expected to table its report this week.

This is not a view shared by the FPA.

“We’ve been living with this uncertainty for three years now, this matter needs to be put to bed well before 1 July,” Rantall says.

“I think this statement by the minister is appropriate.

“The ASIC inquiry is certainly something we’re watching closely. We’ve called for some time now for a co-regulatory model with the regulator, to enable self-regulation of the profession, to give it greater responsibility and more teeth.

“Whatever comes out of the ASIC inquiry, we’ll be looking at that, and again calling for the enshrinement of the term ‘financial planner’ so that once and for all, we can provide a better environment for consumers to get advice that they can trust.”

Best interests provisions remain

A statement by the Association of Financial Advisers (AFA) is similarly upbeat about the announcement. In it, Brad Fox, AFA chief executive, says it is “absolutely clear that the protection of consumers will remain enshrined in law with Section 961B(1), which confirms that the best interests duty remains unchanged”.

The SMSF Professionals’ Association of Australia (SPAA) approves of the reforms for retaining the necessary components of the best interests duty without the catch-all provision.

“The Minister’s statement should reassure the industry and consumers that best interest duty has not been watered down and will still ensure financial advisors act in their clients’ best interests when providing personal advice,” says SPAA chief executive officer Andrea Slattery, also in a statement, issued on Friday.

Fox says the AFA is further encouraged by the Opposition’s support for repairing the grandfathering provisions, with clients now “able to retain existing products when their adviser changes licensees, where it is prudent to do so”.

AFA calls for caution amid criticism

However, Fox urges caution for advisers and their clients amid concerns around what he describes as “blatant mistruths” from groups that include the Industry Super Australia (ISA).

“It is categorically wrong to say or in any way infer that the Best Interests Duty has been stripped away,” he says.

David Whiteley, chief executive of Industry Super Australia, says that as a result of the changes, “financial advice and product sales would be inseparable”.

“Consumer confidence in financial planners would be even further reduced,” Whiteley says.

“The purpose of FoFA was to separate advice from sales. These changes will…simply mean that once again, financial planners will be regarded as product floggers. Their efforts to become a profession will be thwarted. It’s a sad day for the financial planning industry.”

Whitelely believes that what he views as a watering down of the FoFA reforms will lead to more financial advice scandals and eventually even more laws.

“We will, in my view, have a repeat of the scandals that we’ve seen over the past few years,” he says.

“Then probably another series of debate, and more laws.”

Opposition voices its disapproval

According to Bernie Ripoll, Shadow Minister for Financial Services and Superannuation, the governments amendments are “a complete disruption FoFA; it will not survive”.

“They’re all mouthing the platitudes of saying they want to keep banned-commissions provisions – it’s rubbish, the government is ripping everything out of FoFA, there’ll be nothing left,” he says.

“I think the government have stuffed this up so badly that they need to just junk all their changes and start all over again.”