The Financial Services Council (FSC) has told the Senate Economics Committee that under FoFA the cost of financial advice has significantly increased and the number of people who seek it has dropped.
The FSC appeared in front of the committee for yesterday’s FoFA hearings, which will form part of the final FoFA report presented to senate on June 16 and will hopefully conclude months upon months of to-ing and fro-ing, freezing and in-fighting.
Andrew Bragg, FSC’s director of policy, told the committee that the current form of FoFA has strayed far from the original intentions of the parliamentary inquiry that sought reform and cultural change in the wake of collapses such as Storm Financial.
The inquiry, which became known as the Ripoll report, was bipartisan, and among other things it recommended a fiduciary duty, a ban on commissions and increased ASIC power, Bragg said.
“Each of those three key recommendations were designed to address collapses such as Storm, where it was obvious the law was deficient,” he said. “[But] the announcement of FoFA went well beyond Ripoll. It significantly overreached. And over the next three years, FoFA got bigger, broader and less targeted. The original objectives which were two-fold: to rebuild trust and confidence and to expand the affordability and accessibility of financial advice, were sadly forgotten as the reforms fundamentally changed.”
In reality the FoFA package was ambiguous, inconsistent and extremely costly, and has meant financial advice is only becoming more expensive and less accessible, said Bragg, pointing to a survey of advisers completed by the FSC that revealed advice post-FoFA now costs an additional 33%.
He said experience is also showing a fall in consumer numbers seeking holistic advice.
“The FSC repeatedly stated throughout the legislative process that the package would not meet its objectives and that FoFA needed to revert to the Ripoll recommendations,” Bragg said. “We made these points during the Parliamentary Committee which considered the FOFA legislation. We then sought amendments to the package to make it workable and in line with these principles. Chairman we again seek these amendments to do just this.”
The FSC tabled seven amendments it insisted should be strongly considered.
The points included removing the “catch all” step of the Best Interests Duty, amending the Best Interests Duty to include scalable advice, lifting the exemption on conflicted remuneration for general advice (with the exclusion of financial planners), and changing the grandfathering regulations to allow advisers to move licensees and retain commissions.
“We believe the government's amendments to the existing laws will enhance FOFA and restore appropriate balance between strong consumer protection enabling advice in consumers best interest and affordability of affordable advice services to more Australians,” Bragg concluded.