Financial planners could be forgiven for suffering reform fatigue – and the release, last week, of Richard St John’s consultation paper, Review of compensation arrangements for consumers of financial services, will only serve to magnify it.
While St John has done a thorough job in traversing all the issues, there is little in his consultation paper that planners don’t already know: that the existing compensation arrangements are less than perfect, that professional indemnity insurance is expensive and often impractical, and that the Financial Ombudsman Service arrangements are less than ideal.
However, given the importance of the issues raised by St John it is disturbing that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, appears ready to outline the first draft of the Future of Financial Advice (FOFA) changes in advance of industry responses being received with respect to the review of compensation arrangements.
While it may be arguable that the responses to the St John consultation paper can be considered with industry responses to the initial FOFA outline, the Government is in danger of unnecessarily complicating an already highly complex legislative exercise.
St John was originally handed his task by the former Minister for Financial Services, Chris Bowen, and the wide-ranging nature of his brief always meant that it was a task that could not, and should not, be rushed.
As well as assessing the effectiveness or otherwise of the existing Australian regime, his consultation paper has examined the systems that exist in other countries and jurisdictions.
If the Government is to introduce legislation around the FOFA changes then it is imperative that it encompasses not only the recommendations that flow from St John’s comprehensive and well-researched consultation process, but also the shortcomings his analysis has already identified.
Indeed, rather than getting too focused on FOFA as an end in itself, the Government needs to reflect upon the fact that it is actually embarking on a substantial update of the Financial Services Reform Act – and that it is an exercise that must ultimately not only be equitable, but durable.
The financial planning sector and, indeed, the entire financial services sector is being put through a good deal of pain and cost by the Government’s FOFA exercise, and it behoves Shorten to make sure he achieves an appropriate outcome.
The minister will not achieve a sustainable outcome by rushing to impose legislation with the consultative processes left incomplete.
The minister would be wise not to leave a rushed patchwork as his legislative legacy to financial services.
