Abbott Government reforms emasculate investors’ protection.
The Abbott Government is proposing sweeping changes to the Future of Financial Advice (FoFA) reforms. These reforms have already cost industry $1 billion to implement and followed a long list of company collapses including Trio Capital and Storm Financial. Wealth managers and major banks are moving quickly to take full advantage of the new Government’s softer rules.
As the result of industry pressure, Assistant Treasurer Arthur Sinodinos is consulting with the industry on draft rules, which will make it easier for advisers to receive commissions and other so-called ‘conflicted payments’ provided they have not tailored their advice to the client’s personal circumstances. Financial planners will once again be able to earn commissions for selling a wide range of investment products after a Federal Government decision to water down investor protection laws.
A spokesman for Mr Sinodinos confirmed that under the Abbott Government’s changes, products sold as the result of ‘general advice’, that is advice given without a review of the individual client’s financial affairs, will not be subject to the ban on conflicted remuneration. He went on to say,“The current ban on conflicted remuneration captures a far wider range of circumstances than was originally intended and has resulted in significant compliance costs for industry”.
The return to the widespread payment of commissions to financial planners is partly due to loose drafting of the laws by the previous Labor Government. This has enabled banks and wealth managers to reintroduce soft-dollar incentives and new fees in an apparent effort to encourage advisers to sell their products.
Critics of the Abbott Government’s changes to the former government’s reform package claim it has “gutted” the laws which were intended to boost transparency, protect investors and improve access to advice.
Opposition spokesman for financial services Bernie Ripoll observes that,“What the government is doing right now is slowing down the process of building a professional financial services sector and going down the cheap popular path of least resistance rather than doing the hard yards and lifting standards,”
According to David Whiteley, chief executive of Industry Super Australia, which represents six million industry fund members,“This goes way beyond tidying up, or tweaking some regulations. This is about wide-ranging changes that go to the very heart of the proposed reforms.”
And a partner at legal firm Corrs Chambers Westgarth, Michael Chaaya, said the changes to allow commission relating to general advice were a “significant watering down of the FoFA regime”.
Read more in the Weekend Financial Review.
Sadly, Australia, which once led the ‘developed’ world in legislation to enfranchise and protect all its citizens, now seems to consistently ‘miss the boat’.
A current and spectacular example of this malaise has been the regulation of financial planners. Despite waves of high-profile company collapses and the resulting serious financial losses for thousands of trusting investors, little had been done to redress the situation until the former Labor Government finally bit the bullet, introducing Future of Financial Advice (FoFA) reforms, after four years of preparation. Now, the new Coalition Government is hell-bent on turning back the clock under the pretext of reducing red tape, but in reality, gutting the legislation designed to protect the interests of investors.
As with so many ‘initiatives’ of the Abbott Government in the five short months since it won office, these changes to FoFA, announced by Assistant Treasurer Arthur Sinodinos, are in reality intended to restore the unfettered operations of the Big End of town. The immediate practical consequence of the proposed changes, if implemented, will be the restoration of commissions paid to financial planners in return for signing investors up to certain products.
Many other sensible checks and balances intended to protect those attempting to provide financial security for their retirement, will also be abolished or emasculated. Ironically, whilst the banks and life insurance companies will be the beneficiaries, Sinodinos’ proposed changes to FoFA will ensure that financial planners will fail to achieve the long-sought professionalism and trust amongst the community in general and small investors in particular.
What do you think? Should the protection offered to investors under the existing FoFA be watered down? Do you trust financial planners and, if not, where would you seek advice for your retirement savings?
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