01.FoFA reforms target longstanding inequities
Win for consumers with financial advice reforms
CHOICE says consumers have more reason to have confidence in the financial advice they receive, with the successful passage in the Senate of the Future of Financial Advice (FoFA) reforms.
The industry overhaul addresses deep-rooted conflict of interest around how advisers are paid and takes aim at a longstanding regime of hidden fees. Such inequities have meant a raw deal for consumers – one that CHOICE has campaigned against since the early 1980s.
The prospective ban will cover commissions and volume based payments in relation to the distribution and advice of retail investment products. This includes managed investments, superannuation and margin loans.
The introduction of a statutory fiduciary duty is particularly significant. It will mean financial advisers will be obligated to act in the best interests of their client, subject to a 'reasonable steps' qualification.
“This is a big win for consumers because advisers are now obliged to put the interests of their clients ahead of their own when providing financial advice,” says CHOICE Chair, Jenni Mack.
CHOICE says the FoFA reforms herald increased transparency and flexibility of payments for financial advice, by introducing 'adviser charging' that aligns the interests of the financial adviser and the client.
“Adviser charging will be clear and product-neutral, with the investor able to opt in to the advice in response to a compulsory, annual renewal notice.
The reforms will also expand the availability of low-cost 'simple advice' to make it possible for more people to access affordable financial advice.
- Jenni Mack, CHOICE Chair
“The reforms will also expand the availability of low-cost 'simple advice' to make it possible for more people to access affordable financial advice,” says Ms Mack.
CHOICE says the FoFA reforms take into account the concerns of the financial advice industry by offering advisors an alternative to opt-in through the Australian Securities and Investments Commission (ASIC) code approval process.
“Opt-in will protect consumers if advisers seek to place them into inappropriate ongoing advice relationships,” Ms Mack said.
“[It] will also give clients the opportunity to question whether they really need ongoing advice, and many simply don’t.”
Although the laws will only apply to advice relationships started on or after July 1st next year, Ms Mack said the reform is a step in the right direction for consumers rights in the sector.
“The passing of FoFA means that the financial advice industry is now on the path to true professionalism."
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