There has been much debate about the value of financial advisers with FoFA. I believe the best judge of what is good value for a client is the client themselves – not the government. In this process, there has to be appropriate transparency around the fees that are charged, there’s got to be a requirement for the adviser to act in the best interests of his or her client and there’s got to be a capacity for clients to opt out of that relationship at any point.
We’ve welcomed the fact that the industry has moved away from commissions such as product commissions. We still think that there is some refinement to be done around how this is currently addressed in FoFA. The government has backed down from the proposal to ban commissions on risk insurance in superannuation, so they’ve scaled that ban on commissions back to the barest minimum. But ultimately the key with any remuneration arrangement is to remove conflicts and to make sure that it is transparent.
In terms of acting in the client’s best interest, I believe that financial advisers wholeheartedly support the concept of a best interest duty across the industry. The way the government has currently drafted it still leaves a lot of uncertainty in terms of how it would ultimately be applied. In the legislation there ought to be some very clear steps that an adviser has to go through in order to comply with the best interest duty requirements, so there is room to improve the current definition of the best interest duty.
On opt-in, what the government is proposing to do is to force people to re-sign contracts with their advisers on a regular basis. If a client takes a view that they’re paying too much or they’re not getting a good enough service, of course they should be able to either discontinue that relationship and go to another adviser – or stop taking advice altogether – and that’s what the current government is proposing to do with FoFA as it currently stands. We would get rid of the opt-in provision which we think unnecessarily increases red tape and costs for both businesses and for consumers, and would reduce choice and diversity in the marketplace.
So remuneration arrangements need to be fully transparent, conflicts need to be removed, advisers need to have a very clear understanding of what is expected of the requirement to put the client’s interests ahead of their own, and there needs to be minimal red tape which will only increase the cost of doing business for advisers.
We need to have a sensible look at the regulatory framework as it currently applies and look for opportunities to help advisers get on with their business, which is helping people with their financial health and wellbeing. And ultimately the best person to make a judgment on whether or not they’re getting value from the advice relationship is the client – not the government.
