The Government’s amendments to the FOFA legislation seemed capable of creating some loopholes around commissions but, as Mike Taylor writes, the major planning organisations chose morality over expediency.
It should say something to the perpetual critics of the financial planning industry that two of the key organisations representing planners were prepared to say that the Abbott Government’s Future of Financial Advice (FOFA) changes had gone too far in one respect – the general advice exemption.
It might have been expected that, having lobbied hard throughout 2012/13 against elements of FOFA such as “opt-in” and the fee disclosure processes, the planning organisations would be prepared to allow the policy pendulum to swing as far their way as possible, but they have not.
This much was made clear when the Government’s FOFA changes were introduced to the Parliament and both the Financial Planning Association (FPA) and the SMSF Professionals’ Association of Australia (SPAA) openly discussed what they saw as over-reach.
FPA chairman Matthew Rowe made his organisation’s position clear in an e-mail message to members which stated plainly: “The FPA strongly opposes the payment of commissions under the general advice exemption”.
Similarly, SPAA chief executive Andrea Slattery wrote: “Although SPAA welcomes the changes to reduce red tape, we believe that the Government’s amendments allowing an exemption for general advice from the ban on conflicted remuneration is still too generous, even though the Government tightened the exemption after consulting with the industry.
“We believe the best consumer outcomes are achieved independently from links with product remuneration that can incentivise the sale of products over the provision of objective, quality advice in the genuine interest of the client.
“The best approach, in our opinion, is an environment where an adviser’s remuneration is aligned with providing high quality advice without the influence of commissions,” Slattery said.
Both Rowe and Slattery were right to quickly and publicly state their positions on the general advice exemption in circumstances where Industry Super Australia had already begun retailing the notion that the Government’s FOFA changes represented some sort of return to the old commission-based remuneration arrangements which had given rise to the industry funds’ original and highly damaging “compare the pair” campaign.
It is also worth noting the degree to which the FPA and SPAA had actively lobbied the Government to modify its original approach to the general advice exemption in the knowledge that it might not only create a possible loophole with respect to conflicted remuneration, but would create the negative public perceptions which the planning industry had been trying to shake off for the best part of a decade.
Rowe neatly encapsulated this in his message to FPA members when he acknowledged some of the tidying up which had been carried out by the Government’s legislative draftsmen, but warned that the FPA still held the view that there should be a total removal of the ability “to reintroduce superannuation and investment commissions on general advice”.
He said the FPA would continue to work with the Government and the broader industry to “prohibit the reintroduction of commissions on investments and superannuation”.
So the bottom line is that, having decided more than half a decade ago that there needed to be a solid and discernible separation of product sales from advice, key sections of the financial planning industry signalled that they would not turn a blind eye to the creation of a loophole which might have regenerated a commissions-focused culture.
In a very real sense, this represented proof that there is a strong desire within the financial planning industry to reject the practices of the past as it strives to become a profession.
Of course, the make-up of the Parliament suggests that no matter how well drafted the Government’s FOFA amendments may be, they will likely not make it through a Senate still dominated by the Australian Labor Party and the Greens. Thus, it will be the second half of this year before the changes are likely to take effect.
In the interim, there should be no suggestion that just because there has been a change of Government the industry is prepared to change its stance on conflicted remuneration.
