MPs must opt-in for key financial advice reforms
Explicit consent for fees best way to reduce erosion of savings
CHOICE, after a twenty year campaign for much improved financial planning, is today urging federal MPs to support a vital reform around the Future of Financial Advice bill (FoFA).
The people’s watchdog says the vote of independents is vital to ensure a key provision requiring explicit consumer consent before financial advisers can take fees out of a consumer’s investment, the so-called opt-in measure, becomes law and isn’t further diluted.
The FoFA reforms begin their progress in parliament today to improve the quality of financial advice, build trust and confidence in the financial planning industry, and provide lower cost simple or limited advice.
The reforms contain a critical measure to ensure consumers who are disengaged or not aware they are paying fees out of their investments, or are not receiving an ongoing service for the fee, will get important reminders - the so called opt-in fee agreement.
Opt-in is a fee agreement which must be renewed every two years. Upfront fee agreements are standard business practice across the economy. Trades people, lawyers, migration agents, service providers disclose their charges upfront and seek consent usually by way of a signature before undertaking work. It is quite remarkable that this simple measure has become such a contested reform.
To help the sector transition to the new rules opt-in will now be required every two years rather than every year as initially proposed. Every other year a simple “disclosure notice” or statement of account will be provided.
But the financial planning industry has lobbied the independents against opt-in and sought to further push back its timing to more protracted and far less useful periods of several years.
“It is astonishing that the financial services industry has got away with hidden charges for so long. Regular renewal of fees will put an end to advisers drawing fees off accounts with little or no transparency or consent from clients. Opting in means only those who want and approve ongoing advice will pay for it,” says CHOICE director of communications and campaigns Christopher Zinn.
“Many advisers are already seeking client consent for ongoing fees and have demonstrated that this reform will create very little additional cost. The cost to planners will not be significant but the benefits to consumers and the wider industry will be enormous through increased levels of trust and confidence.”
A combined consumer group submission about this legislation says because of the capacity of fees to erode savings opt-in and disclosure provisions have the potential to significantly enhance consumers’ wealth:
“.... this information may enable such clients to overcome their disengagement and take appropriate positive action to ensure that they do not pay fees for little or no service…”
CHOICE has been campaigning for reforms in financial advice since the 1990s. The second tranche of the reforms contains provisions to tackle the conflicts of interests in the remuneration of the advice industry.
Christopher Zinn: CHOICE director of campaigns and communications: 0425 296 442