01.FoFA under fire
The financial services industry is a tough customer, and it’s fighting hard to get rid of important consumer protections in the Future of Financial Advice (FoFA) reform package – to the point where the reforms would no longer achieve the intended effect of removing bias and conflict of interest.
The anti-reformists have gone right to the heart of why the reforms came about in the first place.
Among other things, the industry is pushing to have the legislation amended to allow advisers to continue recommending financial products from which they draw ongoing commissions. In fairness, many advisers may not let such vested interests influence their advice; but there are many who would. The victims of financial advice scandals such as Storm Financial can attest to that.
And in an attempt to hold on to passive income streams – those hidden ongoing fees you pay whether or not you’ve asked for or received any services – the industry is out to scuttle the opt-in clause, which would require advisers to ask customers every two years whether they would still like to keep paying the fees charged to their accounts. The advice lobby also wants to do away with the requirement to provide customers with an annual statement explaining what they’ve been paying for.
These provisions were included in FoFA for good reason – because such information has been woefully lacking for decades, and the lack of transparency has cost Australian consumers dearly.
The advice industry argues that the cost of implementing the reforms without its recommended changes would be passed onto consumers and that, as a result, fewer people would be able to afford advice. The counter-argument is that conflicted advice and hidden fees are the greater long-term threat to consumers.
Advisers also have a habit of selling advice to consumers that’s inappropriate to their circumstances, which is why FoFA requires that advisers act in the “best interests” of their clients. The advice industry is also seeking to undercut this key FoFA clause.
In a submission to the federal government, CHOICE has called on lawmakers to:
- Keep the best interests obligation intact
- Keep the opt-in requirement intact
- Ensure that consolidated annual fee statements go to existing clients, not just new ones
- Ensure that the ban on commissions is not watered down
We’re not the only ones who have found evidence of a broken system. An ASIC investigation in 2012 found that only 58% of retirement advice was of an acceptable standard. In many cases, the bad advice was attributed to the influence of commissions and the failure of an adviser to act in the client’s best interest.
Getting rid of commission-driven sales and ensuring proper transparency are founding principles of FoFA and have been a particular focus of CHOICE’s long involvement in the push for reform. It follows that allowing the commission-driven culture to continue would deal a significant blow to the original purpose of the reforms and to the best interests of consumers.