A Senate inquiry has recommended a clarification of the Coalition Government’s plans to change Labor’s Future of Financial Advice (FoFA) law and the issue of the payment of commissions to bank employees who give advice about bank products.
The issue centres around the concept of conflicted remuneration which says financial planners and others should always act in the best interests of clients. That means commissions shouldn’t be paid to give an incentive to “sell” a financial product over the counter.
The Senate inquiry report says it should be clear in the memo attached to the legislation “that it is not the government’s intention to reintroduce commissions”.
The committee says it’s concerned about the confusion that surrounds the proposed changes and the fear that they have the potential to reopen the door to commissions.
The inquiry recommends the government redraft the provisions governing conflicted remuneration to ensure that there is greater clarity around their implementation.
Industry Super Australia says the Senate report suggests the changes will be brought forward without significant amendment.
It says the majority report of the committee endorsed removing key protections, including dilution or removal of the three pillars of FOFA:
- Diluting the ironclad best interest test by introducing loopholes lobbied for by banks;
- Allowing banks and other product providers to pay financial planners a range of incentives to sell their products, including super; and
- Allowing financial planners to be paid ongoing commission-like fees without providing ongoing advice by removing the opt-in.
Industry Super Australia Chief Executive, David Whiteley says the removal of consumer protections is estimated to result in a $7.5 billion cost to consumers over the next 14 years.
“The division evident between the majority and minority reports demonstrates the contentious nature of the wind back of FOFA consumer protections which the banks have been fiercely lobbying for,” he says.
The former Labor government introduced reforms on the payment of commissions in July last year after a series of collapses of financial advisory groups.
The Senate inquiry received objections to the amendments broadening the exemptions from conflicted remuneration from consumer protection groups and CPA Australia, the Institute of Chartered Accountants Australia, the Financial Planners Association and the Australian Institute of Superannuation.
Those in support of the amendments say the exemption related to general advice only and not personal advice. The bill’s intention is to enable a business to give general advice to retail clients on its own products.
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