Changes to FoFA > Check the facts
When you buy a car or a house, no-one really believes the salesman or the real estate agent when they tell you you’re getting a great deal. You know you need to do your own research and shop around. How about financial advice? Most people assume that financial advisors act in their best interest, and many have paid a high price for that mistake.
Financial advisors often give advice that is aimed at improving their own financial position instead of that of their client. The Commonwealth Bank scandal is just one example of this. Conflicted advice being offered to investors led to the introduction of the Future of Financial Advice, or FoFA, legislation by the Labor Government. The aim of FoFA was to protect those seeking financial advice. Key features of FoFA include a requirement that financial advisors acted in their clients best interest rather than their own, a ban on commissions to financial advisors for successfully selling certain investment products, and a requirement that consumers opt-in to their fee arrangement every two years.
The current government believes FoFA is a red tape ‘mess’ and has sought to introduce reforms. Key changes to FoFA include exempting general advice from the ban on commissions, removing the condition that advisors have to act in their clients best interest and removing the opt-in requirement for fee agreements. This week the government’s reforms passed the Senate, with some amendments from the Palmer United Party (PUP).
David Murray, the former head of the Commonwealth Bank, this week handed down an interim report into Australia’s financial system. His report found that changes are required to make clear to consumers that financial advisors are selling them a product as part of their advice. With Australians paying some of the highest fees in the world it is important that people choose a product that suits them. The FoFA changes mean that if anything we will end up paying more, not less, for financial advice.
The condition that advisers have to act in their clients’ best interest has not been removed. This general obligation stays, along with the obligation for advice for be appropriate to the client (961G of the Corporations Act 2001), and for the adviser to prioritise their clients’ interests over their own (s 961J). One part of the “safe harbour” provision relating to the best interests obligation has been removed (specifically, paragraph 961B(2)(g)).
I find it hard to believe that anyone would go to a bank for “independant” advice. Afterall you don’t go to your local Holden dealer to ask what car you should buy or go to McDonalds to ask which store makes the best hamburgers.