FOFA tranche contains unintended consequences
The second tranche of the Government's Future of Financial Advice (FOFA) legislation has received a very mixed reception from Australia's major financial services organisations, with the Financial Services Council (FSC) suggesting the best interests test may prove unworkable and carry unintended consequences.
Among those unintended consequences is a limitation on the abillity of some financial services companies to provide scalable financial advice.
This contrasts with the attitude of the Financial Planning Association which, while expressing some concerns about the insurance and soft dollar remuneration aspects of the bill, suggested it was broadly supportive of the financial planning profession.
The Association of Finanical Advisers (AFA) said the second tranche needed to be seen as simply the second piece in a legislative jigsaw, and expressed concern about its approach to insurance inside superannuation.
AFA chief executive Richard Klipin said the two tranches of legislation, seen as a total packge, "represent the imposition of massive change for our industry and must be viewed that way".
FSC chief executive John Brogden expressed his concern that the proposed best interests duty contained in the legislation might prove to be unworkable. He suggested it "undermines a core objective of the FOFA reforms - to increase the availability and accessibility of financial advice".
"The FSC supports a best interest duty; however the legislation will create unprecedented uncertainty for consumers and financial advisers," he said. "Our legal advice tells us this legislation would be very difficult to work with from the point of view of understanding what it means and how it would apply in practice.
"The best interest duty is the foundation of the entire reform package, and without a clear and objective measure to test whether a financial adviser has acted in the best interests of their client, advisers will be exposed to significant risk and the cost of advice will go up," he said. "To make matters worse, no reputable financial services provider will be able to offer scalable advice under this particular duty - this will be to the detriment of millions of Australians."
AUTHOR
Mike Taylor
Recommended for you
Government has introduced a bill to Parliament to legislate the first stream of the QAR reforms.
ASIC now has a 1:1 ratio when it comes to court success in the enforcement of crypto activities and more action is expected as Treasury seeks to introduce a regulatory framework.
A leading governance body has hit out at “specialist interest groups proposing ad hoc law reform” when it comes to reforms of financial services legislation and believes an independent body is needed.
The release of ALRC’s final report into financial services legislation has highlighted financial advice as a “significant” focus as it seeks to reduce costs and help advisers understand their obligations, alongside the Quality of Advice Review.
