Orriginally posted on 31 January 2012
Q: I have been reading about the Future of Financial Advice (FOFA) legislation now being debated and was wondering how it will impact my own financial planning. I have been with the same planner for ten years and I’m happy with his service. I am concerned that this legislation may increase the costs of advice. What can I look forward to, good or bad?
A: The FOFA legislation reforms are a result of the 2009 Ripoll review into Financial Products and Services following a number of high profile investment collapses.
The draft legislation aims to address the following areas to restore trust and confidence in the financial advice sector.
• Planners will have a duty to act in the clients best interests
• Clients will need to elect to “Opt In” to ongoing fee arrangements with their Financial Planners
• Insurance commissions to be banned on Superannuation
• Removal of commissions on investment and Superannuation products
• Statutory Compensation Scheme for consumers
On the face of it the objectives of the FOFA reforms appear logical and beg the question “what is all the fuss about?” Any reforms that ensure consumers are better off through greater savings, adequate insurance cover and having access to more affordable advice are worthy objectives.
The primary angst for industry participants is whether imposing additional administration and regulatory requirements will lead to better outcomes for consumers. Will the reforms make Financial Planning more accessible and affordable?
As you have an existing relationship with a Planner that you are happy with, I would suggest that frankly not a lot will change.
There is a great deal of controversy about the requirement to “opt in” to service agreements on an ongoing basis with your Planner. The sticking point is that clients currently can “opt out” of their relationship with a Planner. By imposing an “opt in” it creates additional administration for what is arguably available to consumers now.
How a client chooses to pay for their advice is a discussion that should be had between a client and their Planner. Restricting how a Planner is paid for their advice could have the unintended consequences of making the provision of advice more expensive.
The Parliamentary Joint Committee PJC is holding public hearings this week to collate and examine submissions from industry stakeholders about the draft reform bills. Whether the reforms are ultimately good or bad for you will depend on what the final bill looks like. Stay tuned.
This article was published in The Australian on 28 January 2012. A direct link to the article can be found here.
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