The time and care spent by an adviser fulfilling their best interest duty means higher costs for clients, but what about those who just want a small bit of tailored advice?
In its current form, FOFA legislation does not allow clients to instruct their adviser to limit the advice they receive to their specific needs at the time. The risk is that fewer people will seek and receive financial advice, which means Australians will have lower financial security and general wellbeing, says Financial Services Council chief executive John Brogden.
“Adhering to best interest as defined in the legislation means the adviser has no choice but to take into account the full circumstances of an individual’s situation and provide a full comprehensive plan – even if the client only wants specific, limited advice,” he says.
Many people do not want or need a full financial plan, but just specific advice following a particular event such as inheriting a sum of money or changing jobs.
“The advice they receive and the price they pay should reflect the service that they want. However the legislation does not allow for this. As a result many people in such situations will simply not get financial advice,” he says.
Brogden approves of the announcement by Assistant Treasurer Arthur Sinodinos just before Christmas that the unworkable elements of the Labor-introduced FOFA reforms will be amended.
In particular, he supports a change to allow financial advisers to scale their advice to the instructions of their clients and in their best interests.
“There is no point raising the professionalism and quality of financial advice if it is priced beyond the capacity of the people who most need it. It is a ridiculous outcome if the result of the reforms was that less people get financial advice.”
The Liberal government has said it will:
- Change the best interests duty to assist scaled advice
- Remove the two year opt-in requirement
- Change the grandfathering clause to make it more fair for all financial planners when changing licensees or selling their businesses
- Remove retrospective legislation on fee disclosure statements to apply only to new clients
- Permit commissions for advisers placing clients in financial products
Changes are likely to be legislated in the Autumn sitting of Parliament.
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