Financial Systems Review a chance to move beyond FOFA
While there are many loose ends associated with the Future of Financial Advice regime, Mike Taylor writes that the Government should avoid allowing its Financial Systems Review to become a forum for rerunning all the old arguments.
It was probably not the intention of the Government that its Financial Systems Review should provide another stage for the playing out of the traditionally hostile relationship between the retail financial services industry and the industry super funds.
However the early submissions made to the Financial Systems Review suggest that, for its part, Industry Super Australia (ISA) has not been able to resist reverting to confrontationist themes which have distinguished it over the past decade, particularly its animosity towards financial advisers who it sees as being instrumental in financial services product sales.
This is evidenced by the ISA’s concern that the draft terms of reference for the Financial Systems Review “imply a view of financial services that is very demand driven, particularly that the services provided and the terms and conditions thereof are primarily a response to the interests and demands of consumers and users of financial services more generally”.
“We believe a more complete view should reflect how the demands of consumers are created and influenced by the financial services sector itself. It has long been observed that financial products are ‘sold, not bought’,” the submission said.
“The purchases of consumers are intricately shaped by sales and advice personnel,” it said.
“For the Inquiry to truly encourage products that are in the interest of consumers, the incentives in the distribution and sales of finance would be a more fruitful area of emphasis than the responsiveness of the industry to apparent demand (after it has been shaped).”
So, in short, Industry Super Australia has sought to argue that the Financial Systems Review should traverse the very same arguments it successfully pursued during the former Labor Government’s development of the Future of Financial Advice (FOFA) changes.
It seems doubtful that those appointed to run the FSR process will be much moved by the overtures of the ISA submission signed off by its chief executive, David Whiteley, in circumstances where the Government, just prior to Christmas, announced specific changes to FOFA and has indicated its desire the debate move beyond FOFA to achieve a much broader set of policy objectives.
It is therefore instructive to note that the early submissions filed by the Financial Planning Association (FPA) and the Association of Financial Advisers (AFA) have not sought to dwell on the recently-fought battles around FOFA, but to look at broader issues impacting the provision of financial advice and the factors impacting the financial services industry.
A top-line issue of the initial AFA submission is the suggestion that the current external disputes resolution (EDR) regime be reviewed – something which clearly goes to the heart of the operational experience of many of its members and the somewhat fractured view which exists of the Financial Ombudsman Service (FOS).
However the AFA submission reaches more broadly, and suggests “a review of the effectiveness of the AFSL External Dispute Resolution framework and the interplay with the availability and affordability of professional indemnity insurance”.
In other words, if the FSR process were to follow the recommendations of the AFA, then the suitability of professional indemnity insurance as a statutorily-imposed compensatory mechanism would be reviewed along with the appropriateness of the processes which have evolved around FOS.
The AFA submission did not entirely avoid referencing FOFA or the impact of MySuper and pointed to the impacts on non-aligned licensees and corporate superannuation advisers.
The Financial Planning Association’s initial submission avoided all reference to FOFA and focused, instead, on the FPA’s clear agenda to encourage Commonwealth policy acceptance of so-called Self-Regulatory Organisations (SROs) – something which arguably dove-tails with its drive to become a fully-fledged professional association and its FOFA-related objective of having an ASIC-approved code of conduct.
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