It’s been a difficult birth but the Government’s financial planning laws have passed, albeit in a different form than originally proposed.
The Future of Financial Advice reforms, designed to boost consumer protections after the collapse of Storm Financial and Trio Capital left the firms’ clients out of pocket, passed the House of Representatives yesterday. This followed last-minute negotiations between Financial Services Minister Bill Shorten and independent MP Rob Oakeshott.
But the requirement for financial planners to contact their clients every two years to renew their agreement has been watered down, with members of professional bodies or professional codes approved by the securities regulator now exempt from that requirement. The changes are effective in 2015.
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Under the original plans, planners were required to contact their clients every year to ‘opt-in’ for service, but this was nixed amid a lobbying campaign from planners and wealth managers warning that FOFA would cause mass job losses and disproportionately hurt small businesses.
Announced in June 2009, the FOFA package broadly bans financial planners from receiving commissions and compels financial planners to act in their clients’ best interests.
But the Coalition has pledged to make changes to the FOFA legislation if it wins the next election, warning the new legislation will increase red tape and costs.
Jenni Mack, chair of consumer group Choice, says the laws put the financial planning industry “on the path to professionalism.”
“While we are disappointed advisers will not be required to give consumers a forward estimate of fees, mandatory opt-in will provide a very strong safeguard for new clients,” Mack said.
“CHOICE says that while opt-in will protect new clients, existing clients may well have to switch advisers if they want to get the full benefit of these reforms.”
Shorten said in a statement after the bill was passed that the “historic reforms complement the Government’s historic boost to superannuation, by ensuring that money is managed in the interests of consumers.”
“By building trust and confidence in financial advice, FOFA is a growth strategy for the industry.”
The Government is looking to boost the low numbers of Australians who seek financial advice, but has previously argued that high-profile financial planning collapses had dented Australia’s confidence in the industry.
The passing of the FOFA laws come as wealth managers prepare for new inflows to Australia’s $1 trillion-plus superannuation system, as the superannuation guarantee gradually rises from 9% to 12% by 2019.
The rise has bipartisan support, although the Government and business groups disagree on whether the increases will be lobbed off future wage increases, or be an additional impost on business.