If you think it’s all quiet on the FoFA front at the moment, then picture a duck: serene and calm above the waterline, but paddling frantically beneath it.
Behind the scenes over the past week or so there has been no shortage of action.
Since the government announced a freeze on the Future of Financial Advice (FoFA) amendments it planned to enact last month, the major players in this area have been working feverishly to establish common ground and an agreement to take to the Minister for Finance, Senator Mathias Cormann.
Cormann has the delicate task of balancing the original aims of the FoFA legislation with the commercial realities and interests that it inevitably ran into. The big-picture objectives were to make financial advice more accessible and more affordable for more Australians. It’s still possible to do that, and do it effectively, while at the same time ensuring that the dreaded red tape is minimised and preserving the “purity” – if that is the right term – of the best interests duty and conflicted remuneration provisions.
In a perfect world, the result of the consultation process would lead to a structure with some or all of these components:
1. Removal of the term “general advice”.
It’s an oxymoron, it’s confusing and it’s potentially misleading. How can anything that by definition “does not take account of the client’s objectives, financial situation or needs” be represented as “advice” at all? Replace the term “general advice” with something like “product information”, which explains far more honestly what it actually is.
2. Removal of commissions on “product information”.
Banks and other institutions should pay staff whatever salaries and bonuses they think are appropriate, but get commission out of the picture – and make sure there is no commission embedded in the products that they sell.
3. Enshrinement of the term “financial planner” in the Corporations Act.
Require anyone who wants to call themselves a “financial planner” to be properly qualified – at the bare minimum, they must be an authorised representative of an Australian Financial Services Licensee – and subject to the full gamut of the FoFA rules. That means, among other things, meeting all of the best interests duty requirements; and complying with the conflicted remuneration provisions: no commission on investment or superannuation products.
4. A professional code
In a “perfect-perfect” world, using the term “financial planner” would also be dependent on belonging to a professional body that has a code of professional conduct approved by the Australian Securities and Investments Commission (ASIC).
Of course, there’s more to do than just get the terminology and the structure right, because organisations including banks are still going to want to continue to push products through their own distribution networks.
This is where a public awareness campaign has a role. The Financial Planning Association of Australia (FPA) gave us a taste of that yesterday in the Australian Financial Review. It ran an advertisement saying: “Are you happy with one-size-fits-all financial advice? Or are you an individual? There’s only one you. With only one life. You need professional advice.”
A campaign by either a professional association or – in the spirit of the “superannuation money tree” of years gone by – by the government itself can help send a clear message: if consumers want genuine, non-conflicted advice, from someone who will act first and foremost in their best interests, they should go to a financial planner. Anyone else is just a salesperson.
