Last night in the Senate, the plans to disallow significant portions of the Government’s Future of Financial Advice (FOFA) reforms were blocked by a majority of two votes. The amendments were saved with support from the Palmer United Party, Motoring Enthusiast Party, Family First and Liberal Democratic Party cross-benchers. So the latest iterations of the Future of Finance Reforms stands.
The more recent changes tweaked the wording such that advisors providing general advice (a.k.a) product sales advice cannot directly receive commissions. However, it remains quite feasible for advisors and other customer facing staff to be remunerated against a set of performance targets such as number of products sold against a target. This plays into the hands of the larger banks who control most financial advisors.
As a result, it seems that consumers will need to be watchful that product sales could be dressed up as advice. We discussed the FOFA issue in some detail recently.
The right answer would have been to dispense with general advice altogether, so that consumers could either receive clear financial advice, for which no commissions or other payments should be made; or product sales advice, when commissions and other financial incentives should be openly declared.
FOFA is still a pig’s ear. The majority of consumers seeking investment advice will be older (see the chart below), and there is a risk of undue influence from advisors and others who offer sales advice in the guise of general advice.
