The architect of the Future of Financial Advice (FoFA) package, Bernie Ripoll, said the Hayne royal commission recommendations would evolve into a new version of the landmark reforms that takes a much harder line about the method by which advice is provided.
“The money for jam days are over,” Ripoll said at the Self-managed Superannuation Fund Association National Conference on Friday.
Ripoll reminisced about the implementation of his 2014 FoFA reforms, which were famously watered down after institutional stakeholders complained about a hard cut to banned commissions. Once they were grandfathered, he explained, the commissions proved sticky.
“The sector did a very good job of saying that it was just too difficult to get rid of; ‘they’re embedded, we don’t even know how to break it down, we couldn’t even give you a number, we just take the money, we don’t even know’ – seriously, that was the argument given at the time – we don’t even know because it’s too complicated, it’s built in so we can’t separate it and give you a dollar amount’,” Ripoll recalled.
“They were to disappear over time, just with the passing of time,” Ripoll lamented, “but the opposite happened. People were deliberately kept in those products.”
The carve-outs, Ripoll said, were used as a tool by firms to look after their own best interests, which was not the original intent. In the final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, however, Ripoll believed Hayne addressed the question of unintended consequences “beautifully”.
“Being in Parliament for a very long time, it’s one of the common things you hear,” Ripoll explained. “Everything’s an unintended consequence, which really means, ‘I just don’t want you to do anything that affects me personally.’ It can affect everyone else. Hayne just hits that on the head. He says, ‘No more of that rubbish.’ ”
A Professional Planner online poll has revealed that 42 per cent of advisers derive more than 15 per cent of their revenue from grandfathered commissions, highlighting the dependence that the advice industry still has on legacy revenue.
Jeremy Cooper, chair of retirement income at Challenger – who sat on the panel with Ripoll and once led a review into superannuation – agreed that a new version of FoFA was on the cards.
“I think Bernie’s right, there will be a FoFA 2.0,” Cooper said.
The worst of the royal commission, Cooper said, was the fee-for-no-service findings, which he said left Hayne “clearly very affected”.
“Of course, we were all somewhat immune to that because it was the successor to the commission world, which in the late ’90s and early 2000s ceased being a sales commission and started being called a fee for advice, which was always untrue,” Cooper explained. “So we were all sort of immunised to this idea that money could flow in return for sweet FA.”
The new world, Ripoll said, will be guided by the new disciplinary body Hayne envisages in his final report.
“In terms of FoFA mark 2… to get to that place, to become a profession and restore trust, there must be the right bodies and mechanisms in place,” he said. “And that will be this body, without doubt.”