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FoFA Licensing

FOFA – Time to move on

Glenn Fairbairn
Director/Private Client Adviser
24 Nov 2014

The financial services industry was subject to further instability, confusion and bad press last week when the  Coalition Government’s proposed changes to the Future of Financial Advice (FOFA) reforms were blocked in the Senate.

The block is ultimately good news for Australian consumers who are better protected under the reforms. However it also further casts shadow on the Industry overall, as it continues to fuel an ‘image’ problem alongside well-publicised industry ‘scandals,’ such as that of the Commonwealth Bank.

The Coalition Government’s proposed changes to FoFA were a “watering down” of some aspects of the reforms, including;

1. Allowing commissions to be paid for general advice meaning that bank tellers, advisers and call centre staff would have been able to receive commissions for selling financial products or referring to a bank employed adviser

2. Changing the “best interest test” that must be met by advisers, meaning that advisers could meet the test without the need to act in, or consider the client’s best interests

3. Removing the requirement for clients to authorise ongoing fees. Under this change consumers could continue to be charged ongoing fees but not receive ongoing services.

4. Fee disclosures only required for new clients. That is, pre-existing fees and commissions are grandfathered and are not required to be disclosed.

In the view of Hewison Private Wealth as an independent financial advice firm, the Federal Government’s above proposals for changes to FoFA permitted a range of “softeners” for advisers of product manufacturers; including volume-based and wholesale commissions, as well as commission-like percentage based fees. There is no doubt in our minds that these forms of remuneration are a conflict of interest.

As mentioned in a previous blog, these forms of remuneration are akin to a doctor being on the payroll of a drug company and prescribing products produced by the drug company to their patients in favour of others.

I argue it is time that, as an industry, we cop FoFA on the chin and work to lift professional and education standards of the industry as a whole.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.