The federal government released its watered down version of the draft of the Future of Financial Advice legislation yesterday.
Assistant Treasurer Arthur Sinodinos said the government is supportive of the principles of FOFA but the previous government’s reforms were “unwieldy, burdensome and unnecessarily complex”.
The government announced in December that it would seek to overturn the majority of the former Labor government’s financial advice reforms.
Research undertaken by Rice Warner Actuaries in 2013 found that the previous government’s FOFA laws would reduce the average cost of financial advice from $2046 before the reforms to $1163 after the reforms by 2026-27 and double the provision of financial advice in Australia.
But Sinodinos says draft legislation and regulations will still reduce compliance costs and remove red tape on the financial services industry.
“The proposed reforms will reduce the burden on industry and pressures on the cost of advice to consumers,” Sinodinos said in a statement.
The government has now announced many of the changes will be made by regulation not legislation, meaning there will be no scrutiny by a parliamentary committee.
“In order to provide certainty for industry and to ensure that the measures have effect as soon as possible, the government will implement time-sensitive measures through regulations to the extent legally possible, with amendments to be subsequently made in the primary legislation,” Sinodinos said.
The key amendments include removing the opt-in requirement, streamlining the annual fee disclosure requirements, amending the best interests duty to allow for scaled advice, exempting general advice from conflicted remuneration and amending grandfathering to allow for adviser movements.
The government said the interim regulations will be repealed once the legislative amendments have been passed, while those amendments best addressed via regulations will remain in place.
A spokesperson for Sinodinos defended the amended FOFA regulations to SmartCompany and said the “catch-all” provisions had been removed from the best interests duty because they created “significant legal uncertainty” on how advisers can actually satisfy the best interests duty.
“Removing this provision will make the best interests duty more objective and ensure that advisers have access to a true safe harbour,” she said.
“The best interests duty without paragraph g will still provide appropriate levels of protection to consumers as the remaining elements of the duty (i.e. sections a-f) impose an appropriate standard of care.”
But Industry Super Australia is critical of the government’s approach and says a thorough assessment is needed of the impact of proposed changes to laws designed to protect consumers from conflicted financial advice.
David Whiteley, chief executive of Industry Super Australia, said Australians want impartial financial advice that is in their best interests and not tainted by sales commissions, ongoing advice fees, volume rebates or other types of incentives paid to financial planners by banks and other institutions.
“Industry Super Australia is concerned that these proposed changes will re-permit the payment of conflicted remuneration and re-open the debate about whether a financial planner is an impartial adviser or a sales rep,” he said in a statement.