Arthur Sinodinos’ moves to gut sweeping Future of Financial Advice Reforms (FoFA) reforms, which were born out of the collapse of Storm Financial following a landmark parliamentary inquiry and three years of negotiations, have received a lukewarm response from the Financial Planning Association, which represents more than 50% of Australia’s 18,000 financial planners. On last night’s Lateline program, the head of the Financial Planning Association, Matthew Rowe, explained how the Association strongly opposes the Government’s amendments allowing advisers to once again earn sales commissions from selling certain investments and insurance:
MATTHEW ROWE: Emma, I’m paid on a fee basis so the way our practice works, we engage with our clients, we work through with them the type of advice that they would require and then we agree on how we will be remunerated, which is always by a fee. So it might be a fixed fee in some cases, it might be on six minute time on others, it might be a percentage of their funds under management. There’s a number of different ways we will charge a client.
EMMA ALBERICI: So when the Government changes the law will you go back to accepting commissions from the banks and insurance companies?
MATTHEW ROWE: Emma, no, we won’t and neither will the Financial Planning Association members.
EMMA ALBERICI: How many people does that represent?
MATTHEW ROWE: We have 10,000 members. So there are about 18,000 financial planners in this country and 10,000 of them are our members…
EMMA ALBERICI: So on this program Arthur Sinodinos argued that his changes will allow banks to reward tellers with commissions and kickbacks for selling bank products, as long as they’re making it clear they’re offering general advice rather than personal advice, what’s wrong with that?
MATTHEW ROWE: We don’t believe that a commission should be payable on any form of investment or superannuation, regardless of whether it’s specific personal advice or general advice. In our view, look, as a professional you have to manage conflict. You come into conflict every day. You might be dealing with a husband and wife when they divorce and you’ve got to choose well can I still work with the couple or do I choose one or other?
It’s about managing the conflict. With commissions we believe there’s no way to avoid that conflict and we believe, so you must avoid the conflict. And we believe that very strongly, that you have to avoid the conflict, whether it’s general advice or whether it’s personal advice…
EMMA ALBERICI: Are the Government’s changes to financial advice laws in Australian consumers’ best interests overall?
MATTHEW ROWE: I think overall, I think overall we have a very strong framework for consumers. I don’t think that’s always been the case. I have to acknowledge that.
EMMA ALBERICI: You mean as a result of the original reforms which were passed by Labor, the FOFA reforms?
MATTHEW ROWE: I this as a result of the original reforms and also I think they have been improved in large part in the Government changes that are being proposed at the moment, with the exception, with the exception of the introduction of commissions on general advice.
EMMA ALBERICI: So tell us where else you think the Government has made a positive contribution to the framework of these laws?..
EMMA ALBERICI: OK, let me change the question a little. Reintroducing the ability for planners to accept commissions, is that in consumers’ best interests? We’ve talked about the interests of you and businesses like yours, is that change in the best interests of consumers?
MATTHEW ROWE: I don’t believe it’s in the best interests of consumers. I think it’s a retrograde step.
Commissions and other forms of conflicted remuneration were banned under the original FoFA reforms in order to stop advisers from steering their clients towards specific products in return for kick-backs. Such kickbacks were a key feature of the Storm Financial collapse, whereby thousands of elderly and low income investors lost everything they had, persuaded by their advisers to borrow against the equity in their homes to buy shares and then to borrow more using the shares as collateral. In the process, the owners of Storm Financial pocketed upfront 7.5% of everything that was sent their way.
Given the Financial Planning Association opposes the payment of commissions, why the hell is the Federal Government under Sinodinos proceeding with its amendments to FoFA?
