FOFA reforms raise more questions than answers

The Federal Government may have handed down its Future of Financial Advice (FOFA) proposals but that has not served to end uncertainty in the financial services industry.

As the roundtable published in this edition of Money Management makes clear, a great deal of uncertainty will continue to impact the industry until such time as the Assistant Treasurer and Minister for Financial Services, Bill Shorten, finally tables his draft legislation.

Australian financial planners have been made to live with uncertainty for nearly three years and it is now beyond question that it is not only adversely affecting their sentiment, but the valuations being applied to the businesses they have built.

According to Radar Results, the valuations being applied to financial planning businesses have declined by up to 10 per cent in just the few weeks that have passed since Shorten announced the Government’s FOFA position late last month.

And while Shorten’s announcement certainly answered some of the questions relating to the two-year opt-in and the Government’s intentions with respect to a best interests test and the banning of commissions on all risk products within superannuation, it has left a good many other questions up in the air.

As the roundtable participants made clear, questions remain to be answered with respect to the grandfathering provisions and the actual requirements around volume rebates.

While there is a good deal more horse-trading to take place around the FOFA proposals, there are few industries that would tolerate the prolonged uncertainty that has been endured by the financial planning industry.

It is in these circumstances that the Government owes it to the industry to bring the uncertainty to an end and to deliver some certainty. With this in mind, it is to be hoped the legislation resulting from the FOFA changes can be introduced before the Parliament ends its sittings for 2011.

With the Ripoll Inquiry having taken up most of 2009-10 and with the resulting FOFA proposals having dominated 2010-11, the industry should not have to wait until 2012-13 to know its ultimate fate.

The sooner the proposals are brought forward for debate within the Parliament, the better.

On a positive note, our congratulations to Schroders for being named Money Management Fund Manager of the Year for a third successive year.

In the long history of the award it is the first time a manager has succeeded in securing a hat-trick. Perhaps just as importantly, that achievement was recorded across the full range of market conditions: the global financial crisis, the recovery, and the present day.