The impact of the federal government’s advice reforms on Australia’s financial advisory sector is unlikely to be significant, however, the delivery of a cost-benefit analysis would be beneficial to the industry, a Senate Economics Legislation Committee report has found.
Despite the committee acknowledging stakeholder concern regarding the impact of the Future of Financial Advice (FOFA) reforms on financial advisers, evidence put forward to the committee persuaded it to determine there would be “no significant negative effect”, committe chair and senator Mark Bishop said in the report. The committee was also not convinced the opt-in requirements under FOFA would add a “significant administrative burden” to a financial adviser who was in regular contact with a client, Bishop said.
However, he did call on the government to release the cost-benefit analysis regarding the final opt-in costings.
“The committee does, however, agree that in the interest of transparency it would be helpful if the government could release the cost-benefit analysis, including those elements included in coming to a conclusion about the final cost,” he said in the report handed to Parliament late yesterday.
“The committee recognises that the lack of a clear cost-benefit analysis and relevant RISs (regulatory impact statements) has hindered but not prevented debate about the FOFA reforms and their impact.”
It was the committee’s view that, in the interest of “widening understanding of the impact of the reforms”, that the cost-benefit analysis and RISs should be released by the government at the earliest opportunity, he said.
“In its evidence to this committee, Treasury indicated that this was its preferred option,” he said.
InvestorDaily understands representatives of Treasury were “well progressed” in the draft cost-analysis regarding FOFA. However, the exact timing of its release is unknown.
In regards to concerns over the proposed implementation date for the FOFA reforms, Bishop said despite announcements from the office of Financial Services and Superannuation Minister Bill Shorten regarding a potential extension to the implementation date of FOFA, “at the time of writing, no announcement had been made”.
In terms of commissions, he said the committee noted the “distinguishing feature of commissions” was that they were built into the fees paid by the client to acquire or hold the product, and that following the investment the consumer could not control the commission.
He said the combination of the opt-in and annual fee disclosure statement provisions would expose “hidden ongoing fees and trail commissions”, ensuring consumers were engaged and informed of an ongoing relationship between an adviser and their related fees.
Meanwhile, the committee acknowledged industry concerns, given the far-reaching nature of the reforms.
“The committee believes that the vast majority of these concerns will be allayed through the release of the draft regulations to the FOFA bills and the additional regulatory guidance that ASIC has undertaken to provide,” Bishop said.
“However, the committee recognises that the industry will be required to make substantial adjustments to apply the proposed reforms and the transition period should be monitored accordingly.”
As a result of this, he said the committee recommended a holistic independent review of the FOFA reforms be undertaken.
“The review should provide reports at 12- and 24-month intervals post implementation of the FOFA bills . the review should include consideration of the sale of insurance inside and outside superannuation as well as the use of asset-based fees on non-borrowed amounts,” he said.
