Reforms designed to better protect financial advice clients have been delayed after a lobbying campaign from the financial planning industry, which warned the changes would cause mass job losses.
The Federal Government announced yesterday that the July 2012 starting date for its Future of Financial Advice package had been delayed by one year, giving planners a year to enact the changes on a voluntary basis.
The delay follows complaints from the financial services industry that the timetable was too tight, with smaller financial planners saying they would be disproportionately hurt by the changes.
The reform program was initiated following the collapses of Storm Financial and Trio Capital and is part of the Federal Government’s response to a parliamentary inquiry into financial products and services in Australia.
The wide-ranging changes:
- require financial planners to write to clients every two years to continue their relationship, watered down from every year;
- compel financial planners to act in their clients’ best interests;
- ban trailing commissions on new products; and
- require financial planners to better detail changes and fees to all clients.
The Association of Independently Owned Financial Planners had argued that the compulsion to contact clients to see if they wanted to opt-in for service every two years was unnecessary, because clients walk away when they are unhappy.
In a statement announcing the delay yesterday, Financial Services and Superannuation Minister Bill Shorten said the Government had “listened to concerns from the business and financial planning community that they need more time to prepare for these changes.”
“This timetable also balances consumer needs, as it gives early industry movers the opportunity to provide commission-free products from 1 July 2012.”
“The FOFA reforms are about making sure more Australians can access affordable and better quality financial advice, free from the conflicts of interest created by commissions and other product payments.”
“These reforms will drive greater competition and innovation and are a long term growth strategy for this important industry.”
The FOFA package, announced in June 2009, will now kick in at the same time as the Government’s new default super initiative, called MySuper.
While financial planning bodies have welcomed the delay, it will disappoint consumer advocate group Choice.
Choice said this week that FOFA would “increase consumer engagement with their retirement savings and ensure the industry puts their clients’ interests ahead of their own,” as well as prevent money flowing from consumers to advisers “for very little or no work”.
“While the FOFA reforms are complex, our message to consumers is very simple – ask not what you have done for your financial adviser, but what your financial adviser can do for you.”
“We know ordinary Australians want to be able to trust the advice industry but sectors within it have resisted and sought to delay the very changes which will both build and maintain that trust. “
A delay had been supported by the Australian Bankers’ Association, which said the financial services industry might not have enough time to reach the July 2012 timetable.
But accounting bodies and industry super funds body AustralianSuper have supported the spirit of the changes, the latter saying the industry had been “preparing for these reforms for a considerable time”.