Consumer protection is the aim of the federal government's Future of Financial Advice (FOFA) reforms, but David Hasib of Chan & Naylor Accounting feels the new law may produce some unintended and unpleasant consequences.
Here are his pros about the new legislation:
- “Small business owners will receive specialist advice from financial advisers who are more in tune with the needs of small businesses. For example, previously, many owners were advised on how to grow and sustain their enterprises, but received limited advice when determining what to do with the generated returns.”
- “A transparent fee-for-service will become the norm as the reforms force advisers to adopt new methods of streamlining costs and improving efficiency in order to cope, survive and thrive in the new environment."
- “Small businesses will be presented with clear and deliverable service agreements, negotiated every two years.”
- “Changes to remuneration and commissions will reduce the risk of small business owners receiving bias advice towards product providers that pay over-riders to advisers.”
- “FoFA will ultimately ensure that financial advisers have their client’s best-interest at heart.”
And here are his cons:
- “It’s inevitable that small business owners will face extra costs for financial advice as they are referred to ‘specialist’ advisers and urged to part ways with their existing adviser.”
- “Furthermore, the cost of advice will be more expensive, not only because adviser remuneration cannot be supplemented via commissions (i.e. Risk cover via super), but the cost of PI cover/Dealer fee’s/Staffing needs will have increased significantly.”
- “Due to cost and risk restraints, limited advice or scaled advice becomes near impossible to deliver. As a result, the future of financial advice plays in the hands of the Banks and/or Industry Super funds that ultimately negate the FoFA reforms.”
- "In summary, FoFA will be a double-edged sword for small business owners."