Disallowance of FoFa amendments handcuffs advisers

Don Trapnell

Don Trapnell

Hotel California-type legislation around Grandfathering, reinstated by the disallowance of the Future of Financial Advice (FoFA) Amendments this week, means advisers are now shackled to their existing licensees, according to Synchron Director, Don Trapnell.

Mr Trapnell says the financial services industry, one of Australia’s largest employers, is now stuck in limbo. “We now have, embodied in legislation, the Hotel California clause, whereby advisers can check out of a licensee arrangement anytime they like, but can never leave without suffering a significant financial penalty – a penalty too severe for most of them to survive.”

The shackling of advisers to their existing licensees must be an unintended consequence of the disallowance, according to Mr Trapnell. “It’s inconceivable that the Labor Party intended to legitimize restraint of trade in this way when the FoFA reforms were first drafted,” he says. “We cannot think of any other industry in Australia that has been restrained in this way.”

If the Grandfathering amendments are not preserved Mr Trapnell argues that what is currently world-leading financial advice legislation will become second-rate. “A whole sector of Australian small business will be restricted in their ability to choose a means of distribution that is in line with their culture and their business model,” he says. “That’s in effect what one senator has done – undermined a competitive market in financial advice and in the process overturned Australia’s sense of fair play.”

Consumers are also likely to be worse off, according to Mr Trapnell. “Many advisers are currently looking to change licensees in the interests of their clients as they look towards new business models and a better cultural fit,” he says. “Following the disallowance, advisers will not be able to move to another licensee even if it would enable them to better service their clients, without suffering significant financial penalty. Even If advisers bite the bullet and change licensees anyway, they will then be forced to charge their clients an ongoing fee for service. This will be in addition to the expenses levied against the clients’ accounts by the fund manager. If that happens, clients will obviously be worse rather than better off.”

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