AFA: FoFA fails consumers

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The Government’s first tranche of draft legislation of the Future of Financial Advice (FoFA) reforms, released for public consultation this morning, fails Australian consumers and is clearly biased towards some segments of the industry at the expense of others, according to the Association of Financial Advisers (AFA).

AFA CEO, Richard Klipin said the FoFA draft legislation was always going to be measured against the twin objectives of access for consumers to quality advice and the removal of conflicts of interest.

“On both counts the FoFA draft legislation has failed,” Mr Klipin said. “It uses a heavy-handed approach to force change without a shred of independent research, without any Treasury modelling or rigour and with no clear evidence as to the impact and consequences for consumers, advisers and the industry.” 

AFA President Brad Fox said the draft legislation not only fails consumers in terms of access to advice, but also in terms of transparency. 
He also argued that the Government’s use of Rice Warner Research, commissioned by the Industry Super Network (ISN), which indicated that the cost of implementing opt-in was in the vicinity of $11per client, is a blatant demonstration of the Government’s bias.

“The inclusion of the ISN research and the exclusion of all other valid research on the topic of opt-in is flabbergasting and, in our opinion, quite simply, wrong,” he said. “The Minister in this regard is not acting in the public interest, but in the interest of industry super funds. Research from the advice market has opt-in costing $100-$250 per client with cost imposts at every level of the advice chain – adviser, licensee and product provider.

“This is the reality in the client adviser relationship, which is essentially small business territory:  Opt-in will drive costs up for consumers, entangle them in red tape and reduce their access to advice.”

The AFA would like to see principle-based, rather than prescriptive legislation. “The Government should focus on matching what they say to what they do,” Mr Klipin said, “rather than attempting to control the market.”

Mr Klipin also expressed concern that the Minister has chosen to release the draft legislation in two stages.

“With the late arrival of the draft legislation and the key date of 1/7/2012 still in place, it is critical that issues are resolved as soon as possible or that the implementation date is deferred,” he said.

Mr Klipin said he expected the debate to remain intense, because the financial well-being of Australian consumers is at stake.

“Our key concern is how consumers fare from the legislation,” Mr Klipin said. “That is the focus of the AFA’s  position and we look forward to debating the draft legislation with all key stakeholders. We will also continue to encourage our members to “maintain the rage” with their local MPs across the country.”

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