The Industry Super Network (ISN) wants the anti-avoidance measures contained in the Government’s Future of Financial Advice (FOFA) legislation to be implemented immediately the bills are passed on the basis that it expects most anti-avoidance activity to take place either just before or just after the reforms are put in place.
In a submission to the Parliamentary Joint Committee reviewing the FOFA legislation, the ISN has made clear it supports the tougher elements of the bills including opt-in and annual fee disclosure. It has also expressed its concern that the Government has conceded some ground with respect to risk commissions inside superannuation.
The ISN said the measures in the first tranche of the FoFA reforms, including the annual disclosure requirement and the requirement to renew ongoing fees every two years, "are critical to ensuring that ongoing fees are not able to replicate the effects of trail commissions and that there is a higher level of transparency around financial adviser remuneration which is compatible with professional standards".
"The annual disclosure requirement for financial advice fees must apply to all clients, existing and new, and must require disclosure of all payments," the submission said.
"It is inconceivable that the current regulatory gap, which means clients receive no ongoing disclosure of fees from financial planners, would not be rectified in this process."
It said the ISN continued to oppose the deduction of any asset-based or ongoing fee for financial advice "as it enables the industry to replicate all the ill-effects of commissions".
Dealing with financial adviser remuneration and the best interests duty, the submission said the ISN had "long advocated raising the minimum legal obligations for providers of financial advice to require them to act in the best interests of their clients and prohibit them from receiving income from third parties, particularly from product providers".
However the submission said there were some significant carve-outs which ISN did not support – "in particular, the capacity for commissions to be paid on personal risk products".
"Currently, the legislation prohibits risk commissions to be paid on group risk policies taken out by a superannuation fund or risk policies taken out by a default super fund, which in ISN’s view is critical to ensure that risk commissions are not used as de-facto commissions on the super products of which they are a part," it said.
