The Federal Government yesterday (April 28th) released further details of the Future of Financial Advice reforms (FOFA II), which Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, described as being “designed to provide further protections for consumers of financial advice and to restore trust in the system”.
Trust has certainly been lacking.
Currently, just 20% of Australians seek financial advice, which Shorten describes as ‘a concern’, and the high profile collapses of providers like Storm and others hasn’t exactly inspired faith.
Clearly, reform is overdue.
So, what do the proposed reforms look like? Key elements are:
- A requirement for financial advisers to get clients to ‘opt-in' every two years if they wish to continue to receive ongoing advice;
- Banning all commissions on risk insurance inside superannuation; and
- A broad ban on volume-based payments.
These don’t sound like particularly controversial measures, but the response has been mixed.
Financial planners are worried that the changes could increase the cost of financial planning for consumers, as they pass on their own increased costs.
According to the Association of Financial Advisers, the cost of the ‘opt-in’ measure as calculated by Treasury will ‘effectively add around $100,000 to the running costs of an ‘average’ advisory practice’.
Shorten’s spin is that the reforms “can in fact be a growth strategy for the financial planning industry."
That is, if people’s faith in the profession is strengthened, more people are likely to seek advice.
I wonder if this will be the case, and how long it will take for trust to be restored.
I’m also curious about the assumption that we want more people to get financial advice — does it really make a significant positive difference to people’s financial situation?
Of course, the proposed reforms have also been a bit of a political football.
Shorten’s official release included this dig at the previous Federal Government:
"The Coalition's Financial Services Reform Act in 2001 failed miserably to actually do any good for consumers, because, unlike the Gillard Government, they didn't make the tough decisions on issues like banning commissions and volume rebates."
In turn, Shadow Financial Services Minister Mathias Cormann had little good to say about the proposals, asserting that those who receive financial advice will face more red tape, increased costs and reduced choice if Labor's proposals pass in full.
"Banning commissions on risk insurance will increase costs for consumers, remove choice and leave many people worse off — particularly small business people who self-manage their super," Mr Cormann said.
What do you think? Let us know in the Disqus comments field below.