The AFR’s Chris Joye has continued his worthy crusade against the Abbott Government’s planned rollback of Labor’s Future of Financial Advice (FoFA) laws, arguing over the weekend that they would bequeath us a “conflicted, contradictory and complex financial system” that does not function in consumers’ best interests:
The CBA crisis helpfully highlights the problems that can arise when people try to push products while simultaneously offering consumers supposedly independent advice that is in their “best interests”.
The Coalition’s FoFA roll-back insanely enshrines these conflicts between customer-aligned “personal advice” services and the distinct product sales functions within big institutions…
It is analogous to mixing up a doctor with a person selling pharmaceutical products…
Planners can now receive up to 10 per cent of their total compensation in the form of bonuses based partly on the volume of products they recommend.
This has been purpose-built for big institutions to enable them to encourage planners to push products…
Excising [the best interest duty] allows planners to recommend in-house products that are more expensive and have delivered inferior performance to alternatives, as long as they allow clients to meet their goals.
…the Coalition is also now expressly allowing planners to earn sales bonuses when giving personal advice…
We should not forget that the original FoFA regime, implemented by the former Labor Government, was born out of the collapse of Storm Financial and followed a landmark parliamentary inquiry and three years of negotiations. To wind them back now, and re-introduce commissions and other forms of conflicted remuneration, is a highly retrograde move.
As Keith Jones, senior partner at Affinity Wealth Services, noted in late June:
…the only way to truly align advisers’ interests with clients is “to remove all financial incentives associated with recommending products”…
The Abbott Government’s FoFA rollback violates this fundamental principle and is likely to result in planners increasingly placing their own interests ahead of their clients.
Thankfully, the Government’s changes are likely to be short-lived, with Labor, the Greens, the Palmer United Party and at least two other Senate cross-benchers opposed to the FoFA reforms and signalling that they would block them in the Senate. Let’s hope so.
