Treasury's back-and-forth debate on a number of the Future of Financial Advice (FOFA) reform elements could be counterproductive to the final legislation, an advice executive has said.
Patron Financial Advice partner David Hasib said Treasury's "flip-flopping" debate over approved product lists (APL), the role of margins, consideration of soft-dollar incentives and description of 'best interest' could leave key decision makers with only two options - to abolish APLs or water down the proposals - both of which "void the underlying premise" of FOFA.
"FOFA reforms are arguably the hottest topic in the financial services industry to date and one that will have a profound impact to independent licensees country-wide," Hasib said.
"It's a shame that Treasury has backed itself into a corner whereby FOFA's fundamental purpose to lower costs and lift efficiency cannot work."
He said Treasury's choice to abolish the use of APLs would add a new dimension to financial advice.
"The sheer overflow of extra research and inevitable increase in labour and insurance costs borne by consumers goes against the focus of FOFA," he said.
"Without the guidance provided by APLs, the product research process would completely chew up the value-add component of the adviser-client relationship thanks to the resource-heavy administration."
He said Treasury's choice to "water down" proposals leaving APLs at the discretion of advisers could not ensure 'best interest' for all consumers.
"APLs as they stand are finite and flawed. Advisers who work for banks or big institutions and heavily use APLs cannot possibly act in best interest of their clients because at the end of the day the most spruiked products within the APL will be working in favour of large institutions' bottom line. This again defies the focus of FOFA," he said.
"The industry is united in acting in best interest of clients, however, more balanced moral and ethical alignment should be the order of the day in helping achieve FOFA's overall goals."
