The federal government will consult with the industry and stakeholders to consider a penalty system for financial planners that breached the opt-in policy as part of the ongoing Future of Financial Advice (FOFA) reforms implementation process.
“We have indicated that we will work with industry and regulators to work out what the appropriate penalty system is,” Minister for Financial Services Bill Shorten told journalists in Sydney yesterday.
“We do not think that it is a jailable offence that if you write to someone 90 days before the expiry of the contract and you do not get a renewal on the day. So it’s not going to see thousands of financial planners being marched off into the courts.
“At this time, it is not automatically assumed that a penalty would apply where an adviser charges an ongoing fee without seeking a client’s renewal, or where the client opts out.”
Shorten announced in the FOFA reforms on 28 April that there would be a prospective requirement for advisers to get clients to renew their advice agreement every two years from 1 July 2012.
Count Financial chief executive Andrew Gale said the new two-year opt-in for financial planning arrangements had the potential to increase costs for consumers but it represented an improvement on the original one-year timeline.
Infocus Money Management director Darren Steinhardt said he had mixed views on opt-in.
“Good financial planning businesses already provide services that have a similar effect of an annual renewal. But mandating it every two years is going to impose a cost on every financial planning business which they don’t have now, ultimately driving up the costs of doing business,” he said.
“With Infocus I would imagine we would need to add one more staff member per office to deal with opt-in and the cost of that would be around $50,000 per office.
“Businesses can either bear additional costs if their margins are large enough or pass it onto clients. Given we are still coming out of the global financial crisis and the industry has had a margin squeeze in the last few years I can only see costs being passed onto consumers.”
Yellow Brick Road concurred with the FOFA reforms broadly including recommendations around opt-in.
“Opt-in provisions are entirely consistent with the hallmarks of a profession and a fee-for-service environment,” Yellow Brick Road head of financial planning Scott Walters said.
MLC & NAB Wealth group executive Steve Tucker said with the introduction of a fiduciary duty for advisers, removal of commissions and ban on volume related payments, the company believed that an opt-in arrangement is redundant.
