Many financial planners have lost faith in the Federal Government’s willingness to inject balance into FOFA and, as Mike Taylor writes, this attitude was not helped by recent comments from the Assistant Treasurer, Bill Shorten.
The Federal Government has probably never regarded the financial planning industry as Australian Labor Party heartland, but a number of recent surveys undertaken by Money Management and others have revealed the degree to which the proposed Future of Financial Advice (FOFA) changes have created an even deeper distrust.
What those surveys reveal is that while a majority of financial planners were prepared to embrace the broad findings of the 2009 Joint Parliamentary Committee into the financial planning industry chaired by the Australian Labor Party’s Bernie Ripoll, that support has been progressively eroded by the Government’s approach to the FOFA changes.
Indeed, the surveys point to the fact that the straw which broke the camel’s back for advisers was not the high-cost and administratively difficult ‘opt in’, but the surprise announcement by the Assistant Treasurer and Minister for Financial Services, Bill Shorten, that the Government would be banning commissions on all risk products within superannuation.
It is worth remembering that the Ripoll Inquiry’s final set of recommendations were released with bipartisan support and that, in broad terms, they were welcomed by the major financial services organisations: the Financial Planning Association (FPA), the Association of Financial Advisers (AFA) and the Financial Services Council.
This is hardly surprising, given that those recommendations were:
- Planners should have a fiduciary duty to clients;
- ASIC should be better resourced by the Government;
- Planners should be required to make better disclosure;
- Payments from product providers (commissions, in other words) should be brought to an end;
- The Government should consider making fee-for-service payments tax deductible for the client;
- ASIC’s powers should be extended to banning individuals from the industry;
- Agribusiness licensees should have more working capital;
- ASIC should be given the power to deny, suspend or cancel licences where there is reasonable belief that a licensee ‘may not comply’ with their obligations;
- A Professional Standards Board should be established;
- A statutory last-resort compensation fund for investors should be established; and
- There should be more effective education for those who have not sought financial planning advice before.
All these many months later, few people in the financial planning industry would find reason to argue with the Ripoll recommendations. There are, however, deep-seated concerns about the directions that were pursued by the Government thereafter – and particularly under Shorten’s watch.
In particular, there are concerns that the Government’s final position on FOFA carries a far closer resemblance to the position adopted by the Industry Super Network than that intended by the Parliamentary Joint Committee.
Nowhere in the Ripoll recommendations was any reference made to the notion of imposing an opt-in requirement on financial planners, and while there was discussion around ending commissions with respect to the provision of financial advice, this did not extend to commissions relating to the sale of risk products – particularly within superannuation.
When the industry consultation process around the FOFA changes began, there existed reasonable hopes within the financial planning industry that while it would have to accept some unpalatable changes it would, nonetheless be able to extract enough compromises to end up with a workable solution.
Some of those compromises appear to have been achieved with respect to the grandfathering of some volume payments and the ultimate definition of ‘best interests’, but this has been significantly offset by the Government’s seemingly hard-line approach to opt-in and risk commissions within superannuation.
The unwillingness of the Government to offer further compromise was demonstrated by Shorten when he addressed the Association of Financial Advisers last week and made clear that he had heard the planner arguments with respect to opt in and risks commissions, but was not prepared to change.
The degree to which this has deeply eroded the planning industry’s trust in the Government is revealed in the latest Money Management survey which found more than 90 per cent of respondents believed the Government’s final FOFA changes would be neither viable nor acceptable.
Asked whether they believed the major financial planning groups would be successful in negotiating a viable outcome on FOFA, 92 per cent of respondents said they believed the outcome would be “unacceptable”.
Six per cent of respondents said that while the FOFA outcome might prove to be viable, there would be some elements that the industry would not like.
Only 2 per cent of respondents believed that “necessary compromises will be reached” with respect to gaining a viable outcome on FOFA.
What the Money Management survey also revealed was strong support for a legal challenge to the legislation which evolves out of the FOFA changes, specifically the opt-in requirements on the basis that it would stand in conflict to existing contracts law.
Perhaps just as importantly, a significant majority of respondents said they would be prepared to help fund such a legal challenge.
While the major financial planning groups such as the FPA and the AFA continue to lobby the Government for some further accommodations around opt-in and risk-based commissions, they must face the reality that many of their members already regard FOFA as a lost cause.
