Intra-fund advice no panacea in FOFA fallout
The Parliamentary Joint Committee (PJC) reviewing the Government's Future of Financial Advice (FOFA) legislation has been told there is a real danger that it will fail to deliver on its core objectives.
The chief executive of the Financial Services Council (FSC), John Brogden, told a public hearing of the PJC in Sydney this week that while the legislation may succeed in minimising possible conflicted remuneration issues, it will not succeed in making financial advice more affordable.
What is more, he warned that intra-fund financial advice and scaled advice may not be sufficient to fill the void.
"While consumers' best interests will come first, advice will be more expensive, it will be delivered by fewer advisers to fewer Australians," Brogden said. "It would be a perverse outcome of FOFA if fewer Australians received advice because of these reforms."
The FSC chief executive also revealed modelling to the committee, suggesting a very high price for the implementation and maintenance of the new FOFA regime.
"I can advise the Committee that modelling based on data from the industry indicates that the cost of implementing the FOFA package in full will be $700 million," Brogden said. "This figure is based on what we know now in tranche 1 and 2, and obviously does not take into account further legislation yet to come before Parliament.
"I can further advise the Committee that the annual cost to the industry of complying will be $375 million," he said.
"Ultimately, consumers will bear the brunt of these costs as the price of financial advice increases. And worse, too many people will stop receiving advice or not seek advice because of the cost," Brogden said.
He said that while some had argued that intra-fund advice would be the solution to the increased cost of personal financial advice, this represented an "illusion".
"In this debate, it seems to have been forgotten that intra-fund advice only applies to superannuation. It does not apply to life insurance, debt, income protection, saving for a house, education and all of the other financial decisions and challenges people face," Brogden said.
"Intra-fund advice is the opposite of the spirit and principles of FOFA. It is distorted, it is conflicted, it includes hidden payments, there is no way to opt out, and it will reduce access to true scalable advice."
Recommended for you
The Governance Institute has said ASIC’s governance arrangements are no longer “fit for purpose” in a time when financial markets are quickly innovating and cyber crime becomes a threat.
Compliance professionals working in financial services are facing burnout risk as higher workloads, coupled with the ever-changing regulation, place notable strain on staff.
The Senate economics legislation committee has recommended Schedule 1 of the Delivering Better Financial Outcomes legislation be passed as it is a “faithful implementation” of the recommendations.
Treasurer Jim Chalmers has handed down his third budget, outlining the government’s macroeconomic forecasts and changes to superannuation.
