The PJC was asked to review and provide a report on the benefits of enshrining the terms “financial planner / adviser” for Australian consumers.

The Government will now consider the report and its recommendations and decide whether to proceed with the passage of the Bill unchanged or make amendments. With the Coalition confirming that it will not oppose the Bill in parliament.

Mark Rantall, FPA CEO said: “The FPA applauds the PJC members and the report on enshrinement of “financial planner/adviser” tabled last night. This is a significant step in strengthening consumer protection and allowing consumers with better clarity in identifying a trusted professional. The FPA has led the pathway to professionalism in the financial planning industry and the protection of all Australians and our community believes that this legislation is a significant part of this.

In April 2011, the FPA originally called on the government to restrict the term “Financial Planner” under law for the protection of consumers. The Hon Bill Shorten released legislation for enshrinement in November 2012 and in March this year, government introduced legislation for “financial planner / adviser”.

Under the Corporations Act 2001, there is no constraint on individuals calling themselves “Financial Planners” irrespective of their training, competence, and even licensing. The proposed legislation states that only those fully licensed and authorised to provide personal financial advice can now call themselves a financial planner / adviser.

“The FPA welcomes specific recommendations made by the report to ASIC pertaining to enshrinement of “financial planner / adviser,” Mr Rantall said.

“In order for any piece of legislation to be implemented, an entire profession and industry needs to be behind it. The FPA welcomes the recommendation by the report to have ASIC, through MoneySmart, promote and communicate to consumers the benefits of enshrining the terms financial planner and financial adviser. We also support the recommendation to require ASIC to consult with industry about how to deal with short-term breaches and determine what time is needed to allow inappropriate usage of the term financial planner and adviser to be removed from all marketing material.”

The Coalition originally referred enshrinement to the PJC. It made a recommendation to not oppose the enshrinement provisions of the Bill and confirmed that it would not oppose the passage of the legislation. “This is an historic day for financial planning and all Australians. We are delighted that all parties are united and behind this legislation. The FPA community acknowledges the sensible and timely need to properly consider any unintended consequences, including unnecessary red-tape impacts.

The FPA believes the PJC report re-confirms the strong view that this legislation will not increase regulation or costs to industry, but rather improve trust and confidence in financial planning, delivering stronger consumer protection outcomes and clearing up the current state of consumer confusion.”

The FPA notes that the report acknowledged the widespread industry support for the measure to enshrine the term financial planner.

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The Financial Planning Association (FPA) said the key findings are a blunt prompt to financial regulators and product manufacturers to demonstrably lift protection and disclosure standards in the interest of protecting Australians from further fraudulent actions and criminal attack on their life savings.

“Today’s findings from the Parliamentary Joint Committee (PJC) review of the collapse of Trio Capital remind us that the client-first principle must apply as an iron-clad undertaking by all industry participants and those who oversee the sector,” said FPA CEO Mark Rantall.

The PJC acknowledged that the collapse of Trio did not result from a failure of advice. Rather, it was a pre-meditated and sophisticated fraud, which went undetected over years, despite several audits by regulators. A tip-off by an alert industry participant led to the uncovering of the fraud by ASIC.

“The details of this case, including the sad loss of capital and destruction of investor savings, remind us that vigilance and higher standards are required in the system. Australia is a global model for retirement savings, but is also the target for offshore attack from predators.” 

FPA acknowledged the PJC recognition of the FPA’s position calling on higher standards for related gatekeepers including regulators, auditors, custodians and research houses.

Together with the Richard St John report there is now improved public awareness and acknowledgement that consumers must be protected from all participants – including financial planners – within the financial services sector.

FPA supports the PJC recommendations, in particular the specific recommendations related to Self Managed Super Funds, increased disclosure, improved checks and balances to better detect signals and greater powers and emphasis on superannuation fraud by the regulators and the Australian Federal Police (AFP).

St John compensation recommendation
The FPA further supports the PJC recommendation against the need for a compensation scheme, a finding which mirrors recent recommendations by Richard St John.  A separate levy on SMSFs would not be appropriate and potentially undermine the reasons of choice and flexibility which lead many consumers to invest in a SMSF.

The FPA agrees with the committee’s assertion that financial professionals such as financial planners and accountants need to act in the client’s best interest when recommending a SMSF to clients.

The FPA strongly believes that FOFA along with the removal of the accountant’s exemption will go some way in helping with this.

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Mark Rantall, CEO of the FPA said:
“The original intent of FoFA was to improve transparency of, and access to, financial advice for all Australians. This is an effort that the FPA has consistently supported throughout all discussions with government and, whilst we have welcomed the opportunities to present our recommendations on behalf of our members and consumers, we believe the PJC has missed an opportunity to recommend improvements that would deliver on the consumer protections and benefits that FoFA was originally intended.”

“The FPA is disappointed with the overall recommendations outlined in the PJC‟s report on FoFA. Whilst the report acknowledged some of the concerns raised by the FPA, the majority of the suggestions the FPA made throughout the inquiry, and indeed recommendations made by other representatives of the financial planning industry, have not been adopted.”

Recommendations put forward by the FPA which weren‟t adopted in the final PJC report include:

• The removal of Opt-In renewal requirement
• The annual fee disclosure statement requirement to be removed and/or amended to only apply to new clients
• A request for an amendment to the Best Interest duty, in particular section 961B(2)(g)
• Amend the definition of „group life‟ within superannuation to allow for commissions to be payable on individually advised insurance cover
• A 1-year transition and implementation timeframe of the FOFA reforms similar to those applied for FSR
• The need for an independent regulatory impact statement on the reforms to industry and consumers.

“The FPA will continue to advocate, with government and the independents, the removal of the Opt-In requirement for the benefit of all Australians. We believe the Opt-In requirement could put at risk consumers ability to access a critical response during crisis situations and market uncertainty such as all Australians are faced with now.

The FPA has both welcomed and led the way in introducing a ‘best interest duty’ and the banning of commissions on investments in Australia. Taken together, these render the Opt-In policy redundant and exposes consumers to unnecessary risk,” said Mr Rantall.

“Notwithstanding the limitations of the PJC report, the FPA will continue to raise professional standards on the journey that we embarked upon well before the FoFA reforms were initiated in 2010. The year prior, we approved a new remuneration policy to remove investment commissions and improve client disclosure which will come into effect on 1 July 2012. And also since this time, the number one principle in the FPA Code of Professional Practice requires members to place the interests of their clients ahead of their own; and FPA practitioner members all work to higher professional standards than required by law.”

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“The AFA has always supported legislation which will improve transparency around advice and increase consumer access to advice,” Mr Klipin said. “However we believe that the draft  FOFA legislation, as it currently stands, fails on both these counts.”

Mr Klipin said the Parliamentary Joint Committee (PJC) majority report on FOFA contained a number of misunderstandings in relation to evidence from the industry. 

“It was disappointing to see how they have ignored consistent feedback from the industry on the significant issues with this legislation,” Mr Klipin said.

“While the Dissenting Report addressed these misunderstandings, the Government’s FOFA position appears to have hardened.”

Mr Klipin said the AFA visited Canberra last week and had many constructive high level discussions.

“We met with the key advisers of Independents, we had forthright and honest dialogue with the Greens and the Government and we continue to have good ongoing dialogue with the Coalition,” he said.

“After the release of the PJC report and as a result of our discussions, we have formed the opinion that the Independents will be key in amending FOFA.”

Click here to read a copy of the AFA’s letter to politicians.

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John Brogden, CEO of the Financial Services Council, said the industry would now increase its efforts to convince the Government of the need to make the legislation workable so that it delivered on the Government’s own objectives of increasing trust and confidence in financial advice, improving accessibility and reducing conflicts of interest. 

“Chief among our concerns with the current legislation is that it will not allow for an effective scalable advice framework. Further, the Best Interest Duty fails to provide certainty for consumers and advisers on the parameters of their relationship,” Mr Brogden said. 

“The Financial Services Council supports the overwhelming majority of the FoFA reforms. We want higher standards for financial advisers, we want a best interest duty that puts consumers’ interests first and we want an end to commissions. 

“But we need to be able to provide affordable advice, not just to the Australians who receive it now, but most importantly to the millions who do not. In its current form, the legislation puts this at risk. 

Commenting on the report, Mr Brogden said the Financial Services Council disagreed with the findings of the Committee: “The legislation will increase the cost of advice, reduce its accessibility for the people who need it most and see advisers leave the industry,” Mr Brogden said.

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“The AFA commends the rigour and transparency of the process and thanks the PJC for the opportunity to shine the light on the real facts and impacts of FoFA,” Mr Klipin said.

Mr Klipin said the AFA believes the Government has the right intent – that is, to improve consumer access to advice and reduce conflicts in the financial advice space.

“We trust that the Government will use the evidence given to the PJC to amend FoFA so that the draft legislation can actually achieve these twin objectives,” he said.

Mr Klipin said that following the PJC hearing, the AFA believes there is a common view on the elements of FoFA that help achieve the Government’s objectives and those that do not.

“A Best Interests Duty that is workable makes sense,” he said, “As does removing conflicted remuneration when it skews advice outcomes.”
However, Mr Klipin said that opt-in, annual fee disclose, a ban on group risk commissions inside superannuation and the introduction of legislation which favours scaled and intra-fund advice over holistic advice will ultimately price ordinary consumers out of advice.

“We believe that the introduction of these measures, notably opt-in, will impose unnecessarily onerous obligations on the advice industry, hampering their ability to provide timely and effective advice and adding significant costs. These costs will have to be passed on to consumers, ultimately pricing many out of advice,” he said.

Mr Klipin also said that if the proposed FoFA reforms go ahead without amendment, 35,000 people across the financial advice profession will lose their jobs.

“If we accept the evidence, supplied by the Government in the Explanatory Memorandum attached to Tranche 1, then 6,800 adviser roles will be wiped out,” he said. “Extrapolate that number out to include the five or six ancillary staff each small business adviser currently employs and you’re looking at about 35,000 jobs.”

Mr Klipin argued that the AFA is in a good position to know how many jobs are at risk because it represents small business advisers.

“The Government has not yet done the modelling work we have repeatedly called for and therefore cannot supply any evidence to the contrary,” he said.

Mr Klipin said the financial services industry is a key driver of the economy providing jobs and creating value for consumers by encouraging higher national savings levels, better levels of personal protection and better planning for retirement.

“We know from our consumer research that good advice gives people choices and leads to higher levels of savings, appropriate levels of insurance and greater control of their future,” he said. “With the financial well-being of consumers at stake, we call on the PJC to ensure that common sense prevails; to put FoFA back on track and provide a clear, constructive and sensible plan for the future, so that every Australian retains access to affordable, holistic financial advice.”

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