AIOFP’s Board Response to FOFA

DRAFT

A Discussion Paper Presented to Minister Bill Shorten

1. Fiduciary Duty

While there is currently no statutory fiduciary duty, the vast majority of advisers already behave in a manner that is consistent with such a duty.  i.e., they act in the best interests of clients and place their client’s interests ahead of their own.  The duty should underpin the current characteristics inherent in adviser / client relationships e.g. Trust, Loyalty, Transparency, Objectivity, Ongoing Engagement, Due Care and Skills.

We understand Treasury is considering the introduction of “a reasonable steps qualifier” which requires further clarification.

We believe any fiduciary duty should be “Principles based” but provides sufficient clarity and certainty for advisers and clients about the nature and ramifications of the relationship.

2. Insurance and Commissions

AIOFP accepts that commission banning on investment based products is a thing of the past, however commissions on “Risk based products” should not proceed.

The removal of commissions on Life insurance can potentially undermine the quality of advice obtained or even discourage people from seeking advice altogether.  We support the consumer’s right to choose how they pay for advice as well as flexibility in how advisers can charge clients.  Further we recommend the same treatment for wholesale clients and retail clients in relation to a ban on commissions.  We do not support the Cooper Review’s final report recommendation that commissions should be banned on all insurance products in super, including Group Risk and Personal insurance.

The concern is even greater for accumulators who do not have the where with all to pay fee for service relating to risk advice.  It would appear that the proposed legislation may actually harm those that it purports to help.

3. Intra Fund Advice

We support the belief that financial planning advice cannot be easily broken into simple single components due to the inter-relationship between individual pieces of advice.  This potentially exposes consumers to inappropriate advice by limiting the scope advice provided by not making adequate enquiries.

We require a level playing field that is applied to the advisory sector as well as those that are fund or institutionally based.

4. Volume Payments

Volume based payments are commercially legitimate and are a consumer benefit, fostering competition in the financial services area.  Particularly on a “platform basis”, product selection is “neutral” and unbiased.  Platforms promote efficiencies and administration benefits that are passed onto the client within the form of a rebate or other benefits.  Volume reflects reality e.g. economies of scale.

5. Opt In

Opt in is seen to be an issue of significant concern that may result in administrative nightmares causing reduced services to low end clients or prohibitive costs.  A suggested alternative may be for an “Opt Out approach”, similar to Risk cover increases.