When Financial Services and Superannuation Minister Bill Shorten released the long-awaited Future of Financial Advice report last week he was met with a flurry of claims the reforms would have catastrophic effects for the industry and its consumers.
When Financial Services and Superannuation Minister Bill Shorten released the long-awaited Future of Financial Advice report last week he was met with a flurry of claims the reforms would have catastrophic effects for the industry and its consumers.
From the outside looking in, laws that ensure financial advisers act in the best interests of their clients, broadened accessibility of financial advisory services and strengthened Australian Securities and Investments Commission powers to act against unscrupulous operators all seem fairly elementary.
But it’s not these principles that have the financial advice and planning sector upset.
The industry is worried about a biannual client ‘opt-in’ whereby clients would have to give the tick of approval to continuing their relationships with their financial planners.
Another is the banning of commission-based insurance in superannuation, a move that would lead to advice on insurance being fee based, which would exacerbate Australia’s underinsurance, according to the industry.
Capital Partners managing director David Andrew said by removing commissions, advice on insurance within superannuation accounts would attract a fee for service, which might be a deterrent from the outset, thereby lowering insurance levels further.
“The insurance within superannuation is what I am most concerned about because it is going to create a ridiculous situation,” Mr Andrew said.
“On the one hand advisers have a statutory best-interest duty, and in many cases it is in the clients’ best interests to have their life insurance within super.
“But if they write the insurance outside of super they can get a commission, if they write it inside superannuation they can’t. It is really bad policy.”
The industry’s professional body, the Financial Planning Association, agreed.
Chief executive Mark Rantall said he was unsure the policy was in the consumers’ interests.
“Banning commissions in insurance within superannuation is a concern. We think there is an underinsurance problem in Australia as it stands,” he said.
When it comes to the proposed ‘opt-in’ reform, West Perth-based Wise FP principal adviser Ray Ong said an ‘opt-out’ requirement would pose less of an administrative burden and deliver the same outcome as an ‘opt-in’.
“The policy that causes the greatest concern is the changes to opt-in,” Mr Ong said.
“Many advisers operate in a way where they charge a commission or ongoing service fee, and they charge that on an annual basis and that is the way they get paid.
“The principle behind it is great, but the practicalities of administering it is a challenge,” he said, referring to the estimated $100 cost per client per year of the system.
The FPA holds the same position.
“Whilst it is a good policy, we require our members to engage with clients every year already, making it a law, we see as overkill. It is a good standard but it shouldn’t be legislated,” Mr Rantall said.
According to the FPA, a lot of the issues with cowboys in the industry could be avoided by introducing the term ‘financial planner/adviser’ to the Corporations Act 2001, and restricting who can operate under that title.
Mr Andrew believes a dual licence arrangement, similar to ones in the US and UK, should be introduced to distinguish financial advisers independent of products from what he referred to as product representatives, those who work for financial institutions and represent the institution’s products.
