FOFA changes need further review

It has become self-evident that either directly or indirectly, opt-in is going to drive up the cost of financial advice for many Australian consumers.

The same Treasury officials also confirmed to the Opposition spokesman on Financial Services, Senator Mathias Cormann, that the opt-in arrangement was a virtual fait accompli - the only question that remained was whether it was a one year, three year or five year arrangement.

The Federal Treasury has admitted receiving advice suggesting that the cost of opt-in under the Future of Financial Advice (FOFA) changes will be in the order of $100 per client equating to around an extra $100,000 a year to the average financial planning practice.

This information, delivered to a hearing of the Senate Economics Committee, came only a few days before a number of senior financial planners told a Financial Planning Association (FPA) Sydney chapter luncheon they believed the opt-in arrangements risked abrogating the commonly accepted notion of a contract between a service provider (financial adviser) and a client.

Assuming the figures provided to Treasury are correct and assuming the average financial planning practice turns over less than $1.5 million a year, the addition of $100,000 a year to the underlying cost of doing business is a substantial burden.

When this is taken together with the results of recent polling undertaken by Money Management revealing that virtually all planners would be passing the cost of opt-in through to their clients, then it becomes self-evident that either directly or indirectly, opt-in is going to drive up the cost of financial advice for many Australian consumers.

A question mark also appears to hang over opt-in and whether any legislation designed to enact this provision is capable of withstanding a legal challenge.

It is on this basis that the entire Future of Financial Advice (FOFA) proposals may warrant closer attention on the part of the Parliament, perhaps extending to a review by a Senate Committee to help ensure there are no unintended consequences.

While much of the FOFA agenda was driven by the findings of the Parliamentary Joint Committee chaired by Bernie Ripoll, the agenda has broadened significantly since then and it needs to be remembered that while the Ripoll recommendations went to the issues of commissions and fiduciary duty, it did not specifically canvass opt-in.

The Ripoll recommendations resonated with the financial services industry because they had bipartisan support. The same cannot be said of the FOFA changes — something which suggests a further review may be warranted.