In last week’s blog, we introduced readers to Hewison’s recent discussion paper about the financial planning process. Click here to download the full paper.

This week, we delve into the regulatory reform that kicked on 1 July this year.

The Future of Financial Advice (FOFA) package is essentially the Government’s reform package to improve the provision of advice to retail clients. When the dust settled on the GFC, it became clear that many financial planners had provided questionable – or downright bad – advice to their clients. Some planners had recommended products based on the hidden commission they’d receive, while others – notably Storm Financial – used the banks’ willingness to lend to set their clients up with disastrous margin loans. In the case of Storm’s clients, when the margin calls came, many of these people lost all their assets.

But that is the disaster end of the scale. More often than not, the issue is that clients don’t receive the best possible advice, or are charged fees and commissions that don’t reflect the value of the advice they receive.

According to Treasury, the key elements of the FOFA reforms are:

Despite much protest and debate within the financial services industry, these reforms are positive for consumers, as they enshrine good practice and ethical behaviour. And while they should have always been the minimum standard for providing professional financial advice, they are certainly not the silver bullet for making the industry transparent and unbiased. This will only happen when product sales are completely untangled from advice, and there is no connection between the two.

The FOFA reforms are nothing more than what any reasonable person would expect when they place a high level of trust in their planner. Any client would expect that their financial planner would act in the client’s best interests, or that their recommendations would not be influenced by gifts or rewards from a product provider.