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Shorten lands FOFA with a compromise on opt-in

It will take a while for the dust to settle on the Future of Financial Advice reform package, which passed the House of Reps last night after negotiations between the independents and Bill Shorten.

However, despite press reports to the contrary, the compromise agreed appears to preserve the critical opt-in requirement for financial advice fees.

In the final bill passed last night, the requirement for financial planners to obtain agreement to financial advice fees every two years remains. That opt-in measure is designed to end the highly damaging practice of financial planners relying on clients’ disengagement to charge continuing fees for advice clients neither seek nor want, which costs Australians thousands of dollars a year.

However, the requirement has been amended to allow ASIC to exempt anyone “bound by a code of conduct approved by ASIC” if the code “obviates the need for persons bound by the code to be bound by the opt-in requirement”.

ASIC only registers industry codes if they’re enforceable, are developed through consultation and “elaborate on, exceed or clarify the law”.

Financial planning industry bodies like the Financial Planning Association will now have to develop codes of conduct by 2015 in order to ensure their members will not become subject to the simple opt-in requirement. But importantly, ASIC’s own rules prevent it from allowing the code of conduct to go below that requirement.

The amendment is a win for bodies like the FPA, which can now manage the opt-in requirement themselves via a code of practice. The FPA has mounted a clever grassroots lobbying campaign to convince independent MPs, and particularly Rob Oakeshott, to block opt-in. Opt-in has divided planners, with more professional planners insisting the days of lazy planners relying on disengaged clients to deliver a stream of revenue must end.

But the compromise also, curiously, may lock opt-in more securely. Throughout the entire FOFA process, the Coalition has maintained its refusal to play any sort of constructive role, and simply done the bidding of the holdout and dead-ender financial planners who resent any attempt to reform the industry. Bear in mind the Coalition’s position on financial advice is driven by bitter resentment of compulsory super and loathing of the industry sector for operating funds for the interests of members, rather than generating profits for financial planners and financial institutions.

Last night it was frothing at the mouth about how it would be repealing the reforms when it got into office.

By that time, however, the Coalition may find the industry itself has moved on, overhauling its culture from within, rather than being driven by externally-imposed legislation. The amendments now establish a process by which the industry itself will evolve more quickly toward a profession, rather than being heavily regulated by government.

The final outcome — assuming successful passage of the Senate — is a win for Bill Shorten, who has shepherded the reforms through despite industry opposition and hung on to most of them. Shorten had inherited the reform package from Chris Bowen, but he gets the kudos for securing passage.

For all the compromises, it remains a solid reform in the Labor tradition — in the national interest and in the interests of working Australians, however little attention they might pay to it.

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  • 1
    Jimmy
    Posted Friday, 23 March 2012 at 1:32 pm | Permalink

    Great news!! Anything that squeezes out the lazy shonks is just fantastic.

    It is also another example of the excellent legislative record of this govt which continues to get controversial legislation passed for the good of the nation.

  • 2
    paddy
    Posted Friday, 23 March 2012 at 2:25 pm | Permalink

    Excellent piece Bernard.
    When it came down to the final days & hours of this bill passing the HOR, the ranting from all the interest groups grew so loud, that I wasn’t sure which bits of the bill had been sacrificed.
    Good to read your take on it. Quite reassuring.

    Also looking forward to reading Alan Kohler’s opinion.
    (Especially as it’s been one of his hobby horses for so long.)
    Alas, nothing in today’s Business Spectator.

  • 3
    billie
    Posted Friday, 23 March 2012 at 2:37 pm | Permalink

    I am appalled that my financial planner charges me to produce a statement of account on an annual basis even though it is required to complete my tax return. Then the squirrelly little sod collects trailing commissions based on the value of my investment, is that the original money put in, or its current value.

    Very disappointed that Rob Oakeshott is allowing these bottom feeders to continue to leech the savings of Australians

  • 4
    CliffG
    Posted Friday, 23 March 2012 at 3:11 pm | Permalink

    Right on Steve! And a marked contrast with the vile antics of Abbott and his cronies. They are so covered in sewerage they can’t surface.

  • 5
    Keeno Modercut
    Posted Friday, 23 March 2012 at 3:23 pm | Permalink

    Ditto, the above three.

  • 6
    crisante dante
    Posted Friday, 23 March 2012 at 4:40 pm | Permalink

    At this rate, when Tony gets into The Lodge he won’t have enough time to govern being busy undoing all the good work Julia’s team is doing. Let’s hope Australians are grown up enough not to give him that opportunity.

  • 7
    Mark from Melbourne
    Posted Friday, 23 March 2012 at 5:28 pm | Permalink

    Good to see this one get through - hopefully it works as planned.

    The interesting thing about this is that legitimate FP’s say that this will create a bunch of quite unproductive, costly paperwork for them but…

    The really interesting thing was that they weren’t that fussed losing this as long as they retained the commissions on insurance - this was where they made the big bucks. I think it was 115% of premium for 1st year and then 15% thereafter. Money for jam…

  • 8
    AR
    Posted Friday, 23 March 2012 at 7:54 pm | Permalink

    Well done Gillard government, as with so many other fine legislative initiatives. Keep it up, show what a real reforming Labor PM can do and maybe, just maybe, the great somnambulist lumpen might be roused from their stupor long enough to realise the danger of the MM & his unlovely cohort.
    Unfortunately, if it requires any sort of opt-in or overt action, given that ASIC equivocation, then like the organ donor, the don’t call register, the cost free option to change banks and many other things that a semi sentient populace might do for its own benefit, will probably be ingnored.
    It’s a lose-lose game to rely upon informed self interest.

  • 9
    Glenn Brandham
    Posted Saturday, 24 March 2012 at 8:59 am | Permalink

    Thanks for that, Bernard, another win for Gillard…and I echo Billie’s experience.

  • 10
    billie
    Posted Saturday, 24 March 2012 at 1:16 pm | Permalink

    I can’t see how you can distinguish between illegitimate financial planners and legitimate financial planners. All these fellows have to do is pay $2000 for a 3 day course then they will be able to charge hidden opt-out fees as per usual

  • 11
    Patrick Canion
    Posted Saturday, 24 March 2012 at 2:13 pm | Permalink

    Billie, that’s exactly the point of allowing ASIC to approve a code. You won’t just be able to join up after doing the RG143 accreditation course, you’ll need much higher education and experience. And, you’ll need to be held accountable to this code by your peers, much like doctors and lawyers are now. The code will be a higher standard than the law.

    Combine this with the legislative enshrinement of ‘financial planner’ and you’ll get the great outcome that you as a consumer are looking for, a two-tiered marketplace. Normal ‘authorised representatives’ and ‘financial planners’, both under the same law but the latter held to a higher professional standard. And importantly, clarity as to which is which.

  • 12
    billie
    Posted Monday, 26 March 2012 at 1:47 pm | Permalink

    Patrick Canion that sounds complicated, any idiot can pass a course.

    Why not make financial planners and life insurance salesmen get you to sign up annually or bi-annually for advice. After all if you are told your premiums are $900 for a maximum payout of $450,000, you consider whether the cover is reasonable and consider whether to opt-out.

    With these changes most Australians will continue to pay for invisible financial advice from financial planners who have completed another course and got an additional license

  • 13
    Colin Williams
    Posted Monday, 26 March 2012 at 9:02 pm | Permalink

    Interesting debate. Very divisive in the financial planning if the tweets are any gauge.
    http://www.humblesavers.com/2012/what-the-fofa-is-going-on/

    Billie, yes very complicated and it doesn’t need to be like this, but hopefully it is seen as a step in the right direction

  • 14
    Ceteris Paribus
    Posted Tuesday, 27 March 2012 at 3:09 am | Permalink

    Unfortunately for many people, financial planning has been a wealth hazard. Just look at the ASIC shadow surveys of advisors’ plans, which suggested much advice given maximized the returns for the advisor rather than the client.

    Sad. Trustworthy, affordable and quality financial advice is so vital.

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