The Financial Services Council (FSC) is standing by the results of its member survey that found the implementation of the federal government’s advice reforms will carry a multi-million-dollar price tag.
FSC chief John Brogden told yesterday’s Parliamentary Joint Committee (PJC) inquiry into the Future of Financial Advice (FOFA) bills that the estimated total implementation of $700 million and annual cost to the industry of $375 million remained a true, yet conservative, cost prediction.
FSC modelling, based on data provided by its members, found the costs took into account training advisers and staff on compliance and new systems, implementing opt-in, and system and compliance program amendments.
“Today I can advise the committee that modelling based on data from the industry indicates that the cost of implementing the FOFA package in full will be $700 million,” Brogden told the committee on day one of the two-day Sydney public hearing.
“This figure is based on what we know now in tranche one and two and obviously does not take into account further legislation yet to come before Parliament.
“I can further advise the committee that the annual cost to the industry of complying will be $375 million.”
In light of the FSC’s costings, federal opposition assistant treasury spokesman and PJC committee member Mathias Cormann queried whether the FSC was surprised the government did not undertake a “full and proper” regulatory impact assessment.
“We would have preferred one. There’s no doubt…” Brodgen said before Cormann interjected.
“Do you think that there should still be one before this [FOFA] goes ahead?” he said.
Brogden said: “Ah yes, we’d like to see that . clearly the government is not willing to do that at this stage.”
In response, Cormann said: “Well the Parliament is going to make a judgment on whether we want to force the government to have a regulatory assessment. I guess I’m asking you, given the magnitude of the costs involved, given the magnitude of the complexities involved, given the implications for the significance [to the] industry and consumers across Australia, do you think it’s desirable to have a proper and full regulatory impact assessment before considering legislation like this?”
“Yes Senator, with one proviso, which is as long as the implementation date moves back,” Brogden said.
Cormann then asked whether the FSC would support aligning the implementation date of FOFA and MySuper.
“If this legislation had gone through last year, I think it was this government’s hope . was that this legislation would have gone through in the second half of last year,” Brogden said.
“We may have been able to wear elements of it then coming into 1 July 2012. It is now inconceivable.”
Brogden said the multi-million-dollar cost would ultimately be felt by the end investor as the price of financial advice would also increase.
“Too many people will stop receiving advice or not seek advice because of the cost,” he said.
As well as a cost burden being felt by investors, Brogden predicted a financial increase would also be felt throughout the industry, prompting many advisers to exit.
Another concern for the FSC is how the best interest test will impact on an adviser’s ability to provide scaled advice.
FSC senior policy manager Cecilia Storniolo called on the PJC to remove clause s961B(2)(g) of the best interest test.
The PJC resumes its inquiry into FOFA today.
