Representatives of the independent boutique financial planning space have voiced their key concerns over the Future of Financial Advice (FOFA) reforms, calling for the removal of opt-in and the banning of volume rebates to be reconsidered.
Professional Investment Services group managing director Grahame Evans addressed last week's Parliamentary Joint Committee (PJC) on Corporations and Financial Services hearing on the FOFA reforms, saying the cost-benefit relationship of opt-in demonstrated it was an unnecessary and costly provision.
"There's already a lot of people doing some form of opt-in [within] their own structures," Evans said.
"There are a lot of other provisions within FOFA that act to remove and reduce conflicted remuneration and best interest."
He said the real issue was that the responsibility for advice actually stopped once that relationship ceased.
"The question I would put to government is effectively, are they prepared to underwrite the loss that may occur if a client fails to opt in and some event occurs where they have no opportunity to get advice and there is no PI (professional indemnity) cover or other form of compensation available to do so?" he said.
Boutique Financial Planning Principals Group president Claude Santucci added: "The point that Mr Evans is making is very valid because the way that I understand the proposed opt-in is that if a client doesn't respond, and obviously we'd follow up, then we cannot get paid or continue to charge fees."
Santucci said financial advisers would be in the firing line and could be sued by clients who ended up with collapsed investments but failed to opt in.
"What are we going to do then? I would've thought it'd make more sense if you were going to have an opt-in regime, that the onus is on the client to return the paperwork or the fees continue until he does so," he said.
Further to opt-in was the additional cost proposed to advisers around the annual fee disclosure, Associated Advisory Practices general manager Soula Cargakis said.
"Our members cannot understand the necessity to have both," Cargakis said.
"This appears to be double-handling. Time and cost has not been properly considered and, in actual fact, opt-in and the annual fee disclosure should not have been considered in isolation of each other."
Evans also called for the proposed banning of volume rebates paid by platforms to be reconsidered by the PJC, as platforms were an administrative vehicle, not a product.
"What you have is an uneven playing field because [when] that's removed, boutiques will have to put their prices up substantially, whereas the vertically-integrated model can still receive a subsidy although it won't end up with the licensee," he said.
He said the grandfathering of platform payments was essential so as not to destroy businesses that had been built up over many years.
Cargakis said: "What this means is that we're basically providing one set of rules for one sector of the market, which is the boutique licensees, and one set of rules in terms of the institutional, bank-owned dealer groups.
"Our members see this as an attack on small business as this reform will have a severe effect [on them].
"They just don't have the same resources and financial capacity to compete and may eventually be pushed out of the market or relinquish their licence and, in their view, their independence to join a larger group."
Opposition assistant treasury spokesman Mathias Cormann asked from a public interest point of view why continued consolidation in the market, in anticipation of FOFA, would be a bad outcome.
Evans said there was a massive danger of returning to a "quasi-tied adviser structure" where the products available in the market would only be those of a licensee or super fund that an adviser represented.
"There are a lot of other mid-range, non-aligned dealer groups that believe it's going to be too difficult to operate in that environment. Less independence, less competition, less choice," he said.
"The big institutions have the cheque books when things go wrong, but I would think that's a short-term response to a longer-term issue.
"We've got to make sure that in our rush to protect the consumer there is a balance between the objectives of being able to give that consumer appropriate protection but not actually reduce the competition that's out there in the marketplace."
The groups collectively said the FOFA process had been too convoluted and the 1 July 2012 starting date was unworkable.
