A newspaper editor once described reporters as being like lightbulbs: when one goes “phut!” you just screw in a new one; they all generate about the same amount of light and heat. Politicians are a bit the same. Take one out, put another one in – the heat and the light is pretty much unchanged.
The heat and the light around the Future of Financial Advice (FoFA) amendments manages to be both intense, yet strangely unilluminating. A pause in proceedings called by Senator Mathias Cormann this week is welcome, yet the path ahead seems still dark. Five years down the track, the industry is still facing considerable uncertainty.
The Labor government’s stated aim in originally framing FoFA was to make access to advice both easier and more affordable. The question that has arisen in recent weeks is what kind of advice would be made more accessible?
The clear objective of FoFA was to ensure that the advice people eventually gain access to is both non-conflicted (hence the abolition of commissions and other conflicted remuneration), and delivered with the sole intention of meeting the client’s best interests (hence the best interests duty, and other measures).
While we pause to draw breath, it’s worthwhile remembering that those are principles that should be preserved, and they should be preserved across the board when it comes to the provision of advice. Regardless of an individual’s place in the financial advice food chain, all advice should be unconflicted, and framed in the client’s best interests.
Everything else – including terms of employment, product structure, and relationships between links in the supply chain – should be developed in accordance with the same set of principles. If it is indeed the banks that pushed for the return of conflicted remuneration on advice, then the push must be rejected.
Banks are big, sophisticated financial institutions that are quite good at making a profit from other people’s money. Pushing for the return of commission, suggests that they can’t figure out how to pay people for what they do in a way that is not conflicted or which does not involve commissions.
Please. If it is so difficult to solve such a simple financial issue then it begs the question of whether they’re competent to provide financial advice to other people in the first place.
Section 949A of the Corporations Act defines “general advice” and the steps that a licensee or a licensee’s authorised representative must take when providing general advice – basically, they must make it crystal clear that the advice “does not take account of the client’s objectives, financial situation or needs”.
It is difficult to see how something that “does not take account of the client’s objectives, financial situation or needs” can be called “advice” in the first place. But anyway.
It should make no difference the employment status of an individual giving advice. If it’s really “advice” then it must be unconflicted, and it should be framed in the client’s best interests.
Otherwise it’s not advice at all. It’s not clear what it is, exactly, but it’s not advice.
