FoFA amendments will start rolling out this week: Sinodinos

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The Assistant Treasurer has signalled that proposed amendments to the FoFA legislation will begin to be rolled out this week, leaving a number of groups highly concerned about what this means for conflicted remuneration.

Senator Arthur Sinodinos spoke to ABC’s Lateline last week about the proposed lifting of a ban on commissions that would allow conflicted remuneration for any financial product as long as the advice was general.

“But once I put the legislation and it will start to happen from next week into the House into the Parliament, I'm going to be keeping a very close eye on it and so will ASIC,” Sinodinos told interviewer Emma Alberici.

Mark Rantall, the CEO of the Financial Planning Association (FPA), told Wealth Professional that the association is urging the government against lifting the ban.

FPA members have been banned from receiving commissions since 2009, and that will continue whether or not the proposed conflicted remuneration amendments get passed into legislation, he said.

“We see it as a retrograde step for consumers. [What] we’ve dealt with in FoFA round one is that imbedded commission had the potential to lead to miss-selling,” he said. “It has the potential to be damaging to consumers, and the reputation to financial planners in general.”

While Rantall said most people in the industry agree that the original FoFA went too far in restricting commercial opportunities and adding extra costs, opening the door to structural changes like commissions for general advice could take the industry back 10-15 years.

Similarly, Phil Anderson the COO of the Association of Financial Advisers (AFA) told Wealth Professional that the association does not support its members pursuing a general advice business model for the purpose of obtaining commissions.

“We have concerns about the potential client implications and therefore have indicated in our FoFA amendments submission that we would like to better understand the circumstances under which this exemption might be utilised,” he said.

However, AFA doesn’t believe that that the general advice exemption is relevant to financial advisers who have close ongoing relationships with their clients – it is aimed at services provided by banks and call centres, said Anderson.
During the Lateline interview Alberici suggested to Sinodinos that the proposal to revert the ban on such commissions is due to lobbying from banks.

“I'm interested to know how much your time [at National Australia Bank] influenced your decision to wind back these reforms?” she asked.

She also suggested selling a product could become as easy as a teller saying: “Would you like an insurance policy with that?”

However Sinodinos insisted that bank tellers would have to disclose to customers that the advice is general, and give them a cooling off period to think about it.

The Age reported the reactions of a number of industry players, who outlined the potential drivers behind or consequences of these changes.

Leon Carter, national secretary of the Financial Sector Union, said: “This is what the banks lobbied for; they want to have unfettered access to every customer and they want their staff to sell regardless of the needs of the customer.”

Matt Levey, director of campaigns at consumer group Choice said the amendments would allow for “a sales pitch driven by a commission with no relevance to the person’s financial circumstances”.

However, John Flavell, the executive general manager of wealth advice at National Bank Australia was reported as saying the exemption of general advice was needed.

“If we can remove some of the costs and complexity and make the provisions of wealth solutions available to more consumers that would be a positive outcome,” he said.

AFA refutes general advice rumours                
Lawyers set out FOFA consequences 
Commissions relate to 'mischief making': Sinodinos

  • Alan Harrison on 10/05/2014 8:44:18 AM

    The absolute requirement for any financial advice - banks included is transparency. If a bank officer is assisting a customer to save or invest and they suggest a particular product or strategy, they must be required to declare all their interests in this transaction including who else (eg valuers, or other product providers) is party to the transaction and the nature of that relationship. I have personal experience where a bank that was assisting me with investments, authorised a valuation upon which a mortgage was signed. I was unaware that the officer was paid a commission for each mortgage signed as well as commissions on payments. The bank provided a property valuation which I believe was not a valid valuation, but based upon collusion with the valuer, to create an inducement for me to sign the mortgage. This getting of advice and being renumerated for a sign up - is a clear conflict of interest. There was no disclosure by the bank and all risk was borne by me as an investor. This has resulted in massive loss to me. The bank is protected and I am ruined. Transparency, conflict of interest and avoidance of any accountability for this by banks must change so that investment relationships and economic viability are built. Banks have to stop building profits on the basis of deception. The legislation must ensure these protections for investors as should the banking act.

  • Richard hyde on 17/03/2014 7:52:07 PM

    this is just the big end of town continuing with their capitalist opportunistic ways in product flogging without the need to pay advisers to provide good advice to customers. As long as their revenues grow and the fat cats at the top get fatter, then that's all that they care about. If you can't beat them you may as well join them. I'm going to work for a bank so I can also milk the cow and actually get paid! Can't seem to make money giving good responsible advice these days.

  • Jon Dixon on 17/03/2014 12:49:00 PM

    We do not need commissions re-introduced we need less paper work to simple advice and need ASIC to actually do their job. We need accountants become 'accountable' and required to do SOA as advising a client to buy a new car to get a $6500 tax rebate is some of the worst advice I have ever heard !!! The Govt needs to listen to industry advisers and stop trying to look smart and put in laws they have no idea bout or they will just look like a Labor Govt !!!

  • PETER CORRIE on 17/03/2014 10:45:36 AM

    If you take freedom of choice away from the adviser and consumer in regard to commissions for general advice or anything else for that matter you limit the advice and possibilities of much better outcomes.
    The sooner the Liberals can pass the amendments to the FOFA legislation on this and other issues the better.

WP forum is the place for positive industry interaction and welcomes your professional and informed opinion.

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