Earlier this month, the Australian Investors Association (AIA) released a statement of broad agreement with the Labor government's proposed ruling under its Future of Financial Advice (FOFA) reform.
The AIA said it was in broad agreement with the government's measures aimed at enabling full transparency on fees for service and banning commissions and volume-based payments, and on requiring clients to opt-in each year for ongoing advice and service.
"The FOFA changes to the way in which the financial services industry is remunerated have been brought about by scandals such as the collapse of Storm Financial and Westpoint, where investors were charged fees on loans taken out without their full understanding and which resulted in some investors being left destitute," the statement said.
The AIA cited a recent Newspoll survey, commissioned by the Industry Super Network, that found nearly 75 per cent of consumer respondents were in favour of the annual renewal of ongoing fees.
"Further, of those that had used a financial adviser, 85 per cent preferred to pay for advice via a set fee or hourly rate as opposed to ongoing deductions from their investments or superannuation accounts," the AIA said.
"The financial planning industry has long been remunerated for automatic trails and other commissions for ongoing advice fees for doing very little if any work directly with their clients to justify these."
The AIA said the financial services industry claimed the opt-in provisions would cause cost blowouts associated with contacting clients every year to obtain their agreement for ongoing services to be provided and consent to an ongoing fee being charged.
"AIA would like to see a strong financial planning industry brought about by reforms based on ethical principles and transparency in which the investor is an active participant and partner with an adviser in making financial decisions affecting their future," it said.
It's interesting the AIA has chosen to respond to opt-in now. As those in the industry know, the FOFA proposals were released in April last year. Since then the discussion has almost reached boiling point.
Yet, it is only now, almost 12 months after the fact, that an investor group is speaking out. Perhaps like the industry, the lack of finality and certainty over the reforms has bubbled over.
If investor groups are only now just realising that opt-in will work for them, then how long will it take for investors to fully understand the implications for the businesses of their financial advisers?
