The public should have no need to be afraid that Future of Financial Advice amendments will affect their consumer protection rights, said the Association of Financial Advisers in a placating statement.
“We believe... the amendments improve FOFA and are therefore likely to improve outcomes for consumers by reducing the cost and complexity of delivering financial advice,” said AFA CEO Brad Fox. “We want to see great advice for more Australians and these amendments will better ensure this outcome.”
Suggestions by worried consumer groups the amendments remove key parts of FOFA are incorrect, Fox added.
“The best interests duty and the obligation to give priority to the client’s interests remain, as does the ban on conflicted remuneration and fee disclosure statements for new clients.
“In no circumstances can this obligation be avoided. The best financial advisers have operated in this way for many years and having it legislated sends a clear message to consumers that they can seek financial advice with greater confidence than ever before. The amendments remove one step from the best interests duty, where there was a lack of clarity.”
Another proposed amendment AFA is particularly pleased with is the removal of fee disclosure statement obligations, as the cost of the production of an FDS for existing clients, across the entire profession, significantly exceeded the value to clients.
“Modern systems better enable the production of these statements for new clients. For existing clients in older products on legacy systems however, the complexity of generating these statements posed significant cost and timing issues,” Fox said.
“What may not be well understood, in terms of the FDS, is that the FOFA legislation did not require an FDS to include trail commission payments. This would have led to a high level of confusion for existing clients.”
A regulatory impact statement released by the Treasury last week also said any concern by stakeholders and consumer groups that consumer protection elements will be watered down is unfounded.
“Despite these concerns, many of the measures which were originally introduced by FOFA will remain, including an amended best interests duty and the ban on conflicted remuneration,” it said.
Treasury said the amendments will save the industry around $190 million per year with one-off savings of approximately $90 million – saving just over half of the $375 million in initial estimated costs of FOFA compliance.
The bulk of this saving is likely to come from removing opt-in, estimated to save $76.9 million.
This will contribute to the Coalition’s goal of reducing red tape and compliance costs by at least $1 billion a year.