The financial planning industry’s response to the disallowance of regulations to the Future of Financial Advice (FoFA) laws was both predictable and completely understandable. For an industry and a profession that already has lived through more than five years of turmoil and uncertainty, this was the very last thing it needed. We’re now right bang in the middle of yet another transitional period – a back-to-the-future period, this time – that ends in July next year. That is, until the next round of changes, when all bets will be off again.
But when the heat of the current reaction dies down a little bit – it was showing no signs of doing that at the FPA Professionals Congress this week in Adelaide – it might just be possible that the industry and the profession recognise that they’ve actually been done a bit of a favour.
For now, though, it’s as if two parallel universes exist: one in which the interests, rights and protection of consumers are paramount; and a second one, in which the interests, rights and protection of financial planners (and their businesses) take precedence. It is shaping up as a tough test of the financial planning profession’s claim to put the public interest ahead of all else.
Flip-flopping
The impact on small advice businesses of the flip-flopping on FoFA should be underestimated and certainly should not be dismissed. It’s difficult enough to run a small business at the best of times when the regulatory environment is relatively benign, let alone when wholesale change is regularly foisted upon it.
And it’s certainly rue that we’re living in simply ludicrous times when the fate of laws like FoFA swing on the apparent whims of two members of minor political parties, who have not exactly covered themselves in glory with the way they’ve conducted themselves on this issue.
This isn’t currently a popular view, but the perceived watering-down of the FoFA regulations really was extremely bad PR for the industry and for the profession. Consider for a moment that the first time most people had even heard of FoFA was when the debate about the best interests duty first flared up. To most people, it was an utter revelation that financial planners didn’t already have to put clients’ interests first; the fact that this requirement had to be legislated merely reconfirmed the public’s perception of financial planners to that point.
Watering down
The next time they paid much attention might have been when the debate about modifying the best interests duty cropped up. I say “modifying”; the term the public will have heard more often is “watering down”. So now you had an industry that didn’t already act in its clients’ best interests, being dragged kicking and screaming into a regime where it would have to, and then fighting to have the requirement watered down.
So far as the public is concerned, this week’s disallowance of the government’s FoFA regulations are playing out as being good news. It puts the industry back in a position where consumer protections are perceived to be stronger. Strong consumer protection is a prerequisite for increasing trust and respect, and is absolutely critical for a profession to flourish.
There’s an argument that says if financial planning businesses aren’t strong, then the profession will struggle to deliver financial planning services efficiently and cost-effectively. That may be true.
But if consumers don’t trust and respect financial planning, and do not believe that their interests are being placed above all other considerations, then you have to wonder who the profession thinks will actually be there to deliver its services to.
