FOFA windback hurts consumers who have received advice
The disallowance of the Future of Financial Advice (FOFA) amendments in the Senate does not benefit consumers who will not be able to access scaled advice and may be forced to change to less suitable products as a result of uncertainty around grandfathering.
Association of Financial Advisers chief executive Brad Fox said the uncertainty around grandfathering raised by the Senate vote could result in financial planners having to transition existing business written with previous licensees to new arrangements that could disadvantage clients.
He said planners may not be able to be paid by pre-FoFA clients from existing products if grandfathering arrangements are removed but rolling clients into new products was not a simple process.
"There could be some very significant negative consequences such as exit fees, capital gains tax, buy-sell spreads and where insurance inside super is involved, a possible loss or reduction in insurance cover," Fox said.
"Acting in the client's best interests may prevent the financial adviser from recommending that the client change products. Therefore unless the client is prepared to pay an additional fee for advice, then the advice relationship would almost inevitably end."
Fox added that grandfathering should be allowed to continue as it did not change the cost to the client of advice already provided and that cancelling the payment of an inbuilt remuneration to an adviser did not reroute that money to clients or reduce their costs, but rather it would be retained by the product provider or the licensee.
He also stated the removal of grandfathering was anti-competitive and favoured larger institutionally aligned planning groups and preventing new advisers entering the profession and older advisers being able to exit their business on fair terms.
"If this is prevented, it will be another competition failure in the market place. Large institutions will be likely to gain even greater control over advice, smaller licensee businesses will shrink or disappear and consumers will have less choice about where they seek advice."
"What it meant then, and what it will mean again unless the issue is addressed, is that licensees will not be able to recruit advisers from other licensees. Smaller licensees will not be able to grow their adviser bases and larger licensees will have their advisers locked in. New licensees will not be able to be launched. The small will get smaller and the big, bigger and that's not a competitive market place."
AUTHOR
Jason Spits
Recommended for you
The Reserve Bank of Australia (RBA) has lowered rates to a level not seen since mid-2023.
Financial Services Minister Stephen Jones has shared further details on the second tranche of the Delivering Better Financial Outcomes reforms including modernising best interests duty and reforming Statements of Advice.
The Federal Court has found a company director guilty of operating unregistered managed investment schemes and carrying on a financial services business without holding an AFSL.
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
