The Future of Financial Advice package comes on for debate this Thursday in the House of Representatives and its fate is uncertain after a massive grassroots lobbying campaign by financial planners to stymie reforms designed to phase out the rort of financial advice commissions.
So successful has the campaign been in lobbying the independents to oppose “opt-in” requirements that would see planners have to obtain permission to charge fees for advice that the Financial Planning Association has now expanded its demands and wants to eliminate any legal requirement for financial planners to disclose ongoing fees to their clients.
Last week, the Association’s CEO Mark Rantall emailed members to urge them to lobby the independents to block disclosure of fees:
“Additional fee disclosure statements for both existing (retrospective) and new clients are redundant. Fee disclosure obligations already exist for advisers and product providers in disclosing fees to the client.”
Rantall is wrong: currently, planners have to disclose remuneration they’ll get in the first year they’re giving advice (whether it’s sought or not). Thereafter, annual statements are provided by whoever is providing the investment product, but that doesn’t itemise advice fees. In fact, the FPA’s own Guidance to Members on Principles to Manage Conflicts says that “apart from your initial advice fees, any continuing financial planning advice fee should be disclosed on an ongoing basis. The actual cost of ongoing financial planning advice fees must be disclosed on a regular basis.”
A spokesman for key independent Andrew Wilkie today said that the MP had yet to decide whether to support the FOFA bills.
Plainly the FPA feels it is on the verge of overturning key components of the reforms, despite the embarassment of having industry claims about the employment impacts of the reforms shown to be false. It has circulated a new, glossy guide to lobbying MPs that includes advice for meeting MPs such as “don’t go en masse as this can seem intimidating” and a form letter to MPs to convey that financial planners are motivated by concerns for their clients rather than any self-interest.
The reform package is estimated to be likely to transfer $130 billion to consumers between now and 2020, with minimal impact on financial planning industry employment. Removing the opt-in requirement would gut the reforms, ensuring disengaged consumers continue to hand over thousands of dollars a year to financial planners for advice they never seek and never use.
The reforms are opposed by the Coalition, whose superannuation policy is dictated by financial planners, despite the fact that many planners admit that the current system is “fundamentally wrong” and that “if being required to justify on a regular basis the fact that you are taking a fee from someone’s savings is a massive problem, something is seriously wrong with the industry”.
Update: Opposition Leader Tony Abbott has launched a savage attack on industry super funds, telling the Coalition joint party room they were “gravytrains for union officials” who lacked the ability to run them properly. The remark was in response to claims by an unidentified Coalition MP who alleged “rorts” by industry super funds and close links with the ALP. Industry super funds routinely outperform retail super funds in returns to members, primarily because of commissions taken by financial advisers reco