Rumours had been circling that the Minister for Financial Services, Bill Shorten, would release the federal government’s final announcement on its Future of Financial Advice (FOFA) reforms.
True to his word, Shorten delivered.
Twelve months ago the industry stood to face one of the harshest reform packages in the industry’s history.
Under the former Minister for Superannuation, Chris Bowen’s FOFA proposals, prospective bans were proposed on conflicted remuneration structures including commissions and volume based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans.
The proposed reforms also pushed for increased transparency and flexibility of payments for financial advice by introducing ‘adviser charging’, percentage-based fees only to be charged on ungeared products or investment amounts and only if agreed to with the retail investor.
Bowen’s reforms also proposed the expansion of low-cost ‘simple advice’ to improve access to and affordability of financial advice.
For some, Shorten’s FOFA reforms have delivered a significant blow to their career. For others the decisions are manageable.
The ban on trailing commissions from 1 July 2013 took no one by surprise. It was almost a moot point. Australia’s financial services industry had been well versed in the pros and cons of a commission free world.
The government has also announced a broad ban on volume-based payments which it believed will remove “the monetary incentive to recommend usage of a platform”.
A new element to the reforms was the extension on the previous one year opt-in proposal.
Under the reforms, the government has included a requirement for financial advisers to sign clients to opt-in every two years if they wish to continue to receive ongoing advice.
What did take many by surprise was a ban on up-front and trailing commissions and like payments for both individual and group risk within superannuation from 1 July 2013.
Interestingly, the FOFA changes do not extend to a ban on conflicted remuneration to risk insurance outside of super. For many industry participants, this decision is completely without merit. It makes no sense to them having two rules for the one sector.
What are your thoughts on Shorten’s reforms? We would like to hear your views. If you are an industry participant with views either in favour of the FOFA reforms or not we’d like to hear from you.
