In the heat of the debate around consumer protections in financial advice, Industry Super Australia (ISA) has sometimes been characterised as being pitted against financial planners. On the contrary, ISA and the funds we represent have always promoted the importance of quality financial advice.
Our members need accessible, impartial and high-quality financial advice. For most of our members, superannuation is the largest asset they will ever have, aside from their home. Especially in the lead-up to retirement, it is vitally important that they have access to impartial, professional advice.
ISA will continue to support the legislation that delivers these objectives as debate on the proposed wind-back of the Future of Financial Advice (FoFA) amendments resumes.
The planners employed by Industry Super Funds are not paid commissions or other forms of conflicted remuneration. They do not deduct ongoing percentage-based fees, which replicate many of the ill effects of commissions. They believe financial advice must always adhere to a rigorous best interests duty.
The vast majority of financial planners share this motivation. They, like us, want to be a part of a growing, trusted financial advice profession.
Not in the interests of professional planners
The proposed wind-back of FoFA is not in the interests of professional financial planners, and a great many have publicly opposed the government’s plans. Re-establishing commissions or conflicted remuneration, or diluting the best interests duty, would ultimately prevent the emergence of a fully-fledged financial advice profession.
Consider the proposed dilution of the best interests duty. This would actually result in lesser obligations on planners than existed before FoFA. For example, the proposal to allow client and adviser agreement on the scope of advice would mean that even if the “agreed” scope of advice was not in the client’s best interests, the planner would bear no responsibility. How can a “best interests” duty have credibility if it allows advisers to act in a way that is not in their clients’ best interests?
These proposed changes will renew the sales-based approach to financial planning consistent with the business model of the major banks, but utterly inconsistent with professionalism.
Consider the proposed removal of the biennial opt-in requirement for ongoing fees. Removing this would bring back a situation where many people are paying ongoing fees, but not receiving ongoing advice.
Aside from preventing the emergence of a true financial advice profession, the proposed wind-back of FoFA will harm consumers. The wind-back reintroduces numerous forms of conflicted remuneration and risks increasing the likelihood and impact of future Storm-like collapses. This would do serious damage to consumer wellbeing, and to consumer confidence – not only in advice, but also in superannuation and financial services more broadly.
Fails to assess the impact
Treasury’s regulation impact statement for the proposed wind-back fails to assess the impact of these proposed reforms on consumers. However, Rice Warner analysis, commissioned by ISA, suggests that the consumer detriment from winding back the FoFA reforms could be up to three times the estimated cost savings to business.
ISA will continue to oppose harmful changes to advice laws – which are being driven by the big banks – as they are debated in the Parliament.
If these proposals are defeated, it will be a win for consumers and for confidence in the superannuation system. It will also be a critical win for professional planners.