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Consumers at risk of financial advice windback

CHOICE says FoFA should not be dismantled at the request of financial advisers and banks 

19 February 2014

In a submission on the proposed changes to the Future of Financial Advice (FoFA) reforms, CHOICE has called for a comprehensive regulatory impact statement to assess the impacts on consumers. 

"The proposed changes follow an aggressive campaign from banks and the financial advice industry, so it's critical that any changes take into account the significant likely impacts on consumers," says CHOICE CEO Alan Kirkland.

"While it is true that consumers ultimately pay for increased compliance costs in relation to financial advice, it is arguable they pay even more for conflicted advice and for services which they no longer value or are even aware of.

"In such cases, the balance needs to be in favour of protecting consumers and their retirement income, rather than protecting the income of financial advisers," Mr Kirkland says.

CHOICE has recommended that in the absence of a consumer impact statement showing clear benefits that outweigh costs, the Government should not proceed with changes that would:
  • Dilute the best interests obligation;
  • Remove the opt-in requirement;
  • Limit the consolidated annual statement of fees to new clients; and
  • Water down the ban on commissions.
"It's important to remember that the need for widespread reform followed the catastrophic effects of major financial advice scandals, and more than two decades of investigations from CHOICE into widespread conflicts of interest that compromise independent financial advice," Mr Kirkland says.

"These are the problems that FoFA was designed to fix, and we urge the Government to reconsider its changes, or else explore alternatives to improve the quality of advice and build consumer trust and confidence in the financial planning industry," Mr Kirkland says.

CHOICE's recommendations

  1. CHOICE recommends that the Government undertake a comprehensive Regulatory Impact Statement to assess the impact of the proposed changes to FoFA on consumer confidence, consumer engagement and consumer savings.
  2. CHOICE recommends that the Government release a full exposure draft for all proposed regulatory changes, with adequate opportunity for consultation and comment.
  3. In the absence of a comprehensive Regulatory Impact Statement demonstrating that the impacts of the proposed FoFA changes in terms of consumer confidence, engagement and savings do not outweigh the benefits, CHOICE recommends that the Government:
    • Make no change to the best interests obligation;
    • Make no change to the ban on commissions;
    • Make no change to the renewal notice requirement; and
    • Make no change to the consolidated statement of ongoing fees to existing clients.

Background on FoFA

  • In 2013, ASIC noted "broad systemic problems with the financial advice industry, driven by conflicted remuneration structures and compounded by weaknesses in the regulatory system."  
  • In 2012, only 58 per cent of retirement advice surveyed was at an acceptable standard.  In many cases, this was attributed to the presence of commissions and the failure of an adviser to act in the client's best interest.