Industry Super Australia (ISA) has reiterated its view that Future of Financial Advise (FOFA) reforms should be given time to deliver benefits to consumers before new changes are approved.
ISA deputy chief executive, Robbie Campo, urged the Senate Economics Committee to extend the pause in changes to FOFA for at least three years.
Ms Campo warned that “technical amendments” to the FOFA reforms, proposed by the banks and some financial planner, would result in weaker laws than existed before the legislation, stressing the reforms needed time to bed-in.
She said more analysis was particularly important given the Senate Inquiry into the scandal surrounding Commonwealth Financial Planning Limited’s provision of compensation to clients impacted by poor advice given by it advisers, and ASIC’s response to it.
Campo said the banks’ proposed 'technical amendments’ to FOFA included:
1. The return of eight different forms of commissions or sales incentives to financial planners and bank staff.
2. Changes to the best interests test so that financial planners can meet a diluted test without having to act in their clients best interests. Allowing a planner to seek client agreement on the scope of advice will result in weaker laws that existed before FOFA.
3. Permitting financial planners to charge ongoing percentage based fees without provide ongoing financial advice by removing the 'opt-in’.
4. Extending generous grandfathering provisions to increase the payment of commissions from existing clients to financial planners by a further $2.8 billion to nearly $9 billion over the next 14 years.
Rejecting the banks’ proposed changes, Campo said the interests of clients, super fund members and retirees should be put ahead of the demands of financial institutions and advisers.
She highlighted research, carried out by RiceWarner Actuaries, on behave of the ISA, which found the proposed changes could cost consumers $7.5 billion over 14 years.
“However, the RiceWarner analysis is conservative and does not quantify the cost of the dilution of the best interests duty, which as past collapses have shown, have a profound impact on consumers”, she said.
