SYDNEY: 28 April 2011 – The Future of Financial Advice (FOFA) reform package announced this morning will impose higher costs on consumers, impede their access to advice, tie them up in red tape and create even greater confusion according to the Association of Financial Advisers (AFA).
“While we believe the original intent of FOFA was commendable, the execution is not,” AFA CEO, Richard Klipin said. “The FOFA rhetoric has not been matched with strategy and consumers have been hung out to dry.”
Mr Klipin said that the AFA is concerned that the real needs of consumers have fallen on deaf ears. “While only two in 10 Australians currently get advice, we know from our consumer research that good advice gives people choices and leads to higher levels of savings, appropriate levels of insurance and greater control of their future,” he said.
“Under the announced reforms the number of people able to access advice is in danger of dropping to even fewer than two in 10.”
Mr Klipin said the AFA believes the FOFA agenda has been hijacked by the superannuation lobby movement at the expense of everyday Australians.
“While it might be a victory for large superannuation funds and the superannuation lobby cheer squad, it is a dark day indeed for ordinary Australians and their ability to access affordable advice,” he said.
The AFA’s Response to the Government’s Proposed Reforms
Ban on Commissions on Risk Products within Superannuation
Mr Klipin said the Government’s intention to ban commissions on risk products within superannuation means consumers will have to fund the cost of advice upfront, out of their own pockets.
“As our Risking Everything research revealed, a ban on commissions will mean people won’t access advice,” he said. “We have said it before and we will say it again: it is not advisers who object to charging fees, it is consumers who have a problem paying them.”
Mr Klipin also said the Government is well aware that the more tinkering that goes on with the superannuation system, the less confidence the community has in the future of super. “Forcing people to pay fees for insurance advice inside super will mean even fewer will have adequate levels of insurance,” he said. “In a country that is already grossly-underinsured and under-saved these changes will ultimately put a greater drain on the public purse.”
On the issue of opt-in, Mr Klipin said that while a two-year period is a minor victory for common sense, the devil is in the detail. “If you read between the lines the two years becomes one year by stealth. But whatever the period, we believe opt-in is bad policy. It devalues the long term nature of the relationships consumers have with their advisers and increases the adviser workload which, again, pushes up the cost of advice.”
Mr Klipin also argued that it is not the role of Government to dictate how consumers engage in their advice relationships. “We do not need a return to the Nanny State – Australians are too smart for that.”
Product Failures or Advice Failures?
“What the Government has failed to realise is that many of the financial losses suffered by consumers in the past were the result of product rather than advice failures. None of the reforms put forward today address this,” said AFA President, Brad Fox.
The Law of Unintended Consequences
Mr Fox called on Minister for Financial Services and Superannuation, Bill Shorten to release the research that identifies the impacts of FOFA on the millions of consumers and thousands of advisers and their communities across the country.
“With such a substantive program of reform we expect to see the Government’s modelling on the impact of FOFA on:
- advice delivery
- costs of advice delivery
- small business valuations
- employment within the advice sector
- the viability of the non-institutional advice sector.”
Mr Fox said the AFA will continue to fight for what it believes is right for clients. “Financial advisers take on the role of providing leadership and direction to everyday Australians; they are at the heart of what we do,” he said. “We will continue to fight on their behalf until the FOFA recommendations are fully focussed on them and their ability to access personalised financial advice in a sensible, affordable manner.”