The obligation of having financial planners formally renew their relationships with their clients on a yearly basis is the most important factor that will determine the success or failure of the Future of Financial Advice reforms (FoFA) currently being considered by the government, according to the Industry Super Network (ISN).
The emphasis on the critical nature of an opt-in arrangement has been highlighted in a briefing paper the ISN released yesterday.
Specifically, the ISN feels an annual review is needed to allow asset-based fees to operate in a proper manner.
“The only way in which asset-based fees can be permitted within a future advice regime is with an annual review requirement in the form of an opt-in mechanism. Without a requirement to annually renew these arrangements, the FoFA reforms will be seriously compromised,” ISN chief executive David Whiteley said.
“Ongoing asset-based fees create the potential for consumers to be charged for advice they do not receive. The annual review mechanism is a logical safeguard to ensure that the client continues to agree to fund ongoing advice fees as a deduction from their investments,” he said.
“The annual renewal mechanism will ensure that ongoing advice fee arrangements are not left in place simply through client inertia.”
Whiteley cited greater transparency as another outcome the yearly review would produce.
Consumers would also achieve better engagement and control over their investments under the new obligation to assess the financial planning relationship every 12 months, Whiteley said.
