The proposed legislation to make financial planners provide their clients with the ability to opt in for the receipt of continued financial advice on a yearly basis is legislative overkill, according to Colonial First State advice business general manager Paul Barrett.
“The benefits of advice manifest over many, many years. So in many scenarios it may be a three, to five, to seven-year cycle in terms of when the benefits actually manifest,” Barrett told attendees at the latest FPA Sydney Chapter luncheon.
“To have an annual or even a two or three-year opt in is not appropriate in those situations,” he said.
Barrett suggested the regulation could result in a situation where individuals miss out on receiving financial advice when they need it the most simply because they have failed to fill out the required documentation for the advice to continue.
“The reality is Australians are apathetic when it comes to filling out financial paperwork and you only need to look at binding death benefit nominations or even voluntary super co-contributions to see that,” he said.
Barrett identified the initiative as perhaps another situation where financial risk was being transferred back to the consumer.
“If you think about the defined benefit superannuation schemes moving to defined contributions – that was an example of shifting risk to households,” he said.
“I think an annual opt in does the exact same thing when it comes to issues like retirement adequacy and the like.”
The annual opt in requirement also clouds the issue of when the fiduciary duty to a client begins and ends, Barrett said.
“If I set up a piece of advice that takes five years to see the benefit, do I actually have an onus to serve my client and act on that fiduciary duty even though they haven’t paid the fee?” he said.
“It’s easy for people to say there is no fiduciary duty but the reality is, in practical terms, a very difficult thing to contemplate.”
