The Federal Government needs to conduct an audit of the Future of Financial Advice (FOFA) changes to see whether they have appropriately measured up given the high costs involved, according to the Financial Planning Association (FPA).
The FPA has used a submission to the Treasury’s FOFA post-implementation review, to point to the high costs involved in implementing the changes to the financial advice industry and to question whether the central objectives have been achieves.
“The objectives of the FOFA reforms were to ‘improve the trust and confidence of Australian retail investors in the financial services sector and ensure the availability, accessibility and affordability of high quality financial advice’,” the FPA submission said “However, the costs associated with the implementation and ongoing compliance with many of the FOFA measures have impacted the costs involved in providing advice and barriers to business growth resulting in higher advice fees for clients and restricted service offerings.”
It is against this background, the FPA has recommended that the Government conduct research to measure and qualify if the FOFA reforms met its objective of improving the quality of advice.
In doing so, it said such a move had to include “an analysis of pre-FOFA research against the post-FOFA research findings, and should examine quality of advice, cost of advice for consumers, changes in types of advice available to consumers and incidences of compliance failures and regulator action”.
One of the issues which most angered advisers prior to the implementation of FOFA – opt-in – continues to be an issue, according to the FPA, with its submission stating: “Feedback from members reveals that the opt-in provisions have proven to be more onerous than what was first thought. The reality of implementation on some small business and large impact of time and efficiency has cost a lot of money on all levels”.
Elsewhere in its submission, the FPA pointed to the business impacts of the FOFA ban on up-front and trailing commissions for individual and group risk insurance within superannuation, claiming the changes resulted in a significant reduction in income with some small businesses losing between 15 per cent and 30 per cent of revenue.
It said this was allied with a significant increase in compliance costs and, in some cases, an end to services being offered because clients were not prepared to pay a flat fee for advice.
Looking at client costs in this area, the FPA submission said FOFA had added around $5,000 to the cost of training, between $5,000 and $10,000 to implement new remuneration systems and IT changes of around $5,000.