Acting Assistant Treasurer Mathias Cormann should do much more than tweak the amendments to the Future of Financial Advice legislation after he consults “in good faith”; he needs to rethink the Government’s whole approach to the subject.
Under the cover of streamlining the laws and removing red tape to lower cost, the Government is proposing eight changes to the law that will allow banks to once again use licensed financial advisers to sell investment products while pretending to provide independent advice.
The advisers didn’t ask for this, the banks did. In fact the financial planners and the banks have been tussling for years over whether the planners are merely a distribution network for investment and superannuation products, or genuine independent advisers focused on their clients’ needs.
FoFA was the victory of the planners; the Coalition’s amendments are the banks’ putting planners back in their rightful place -- sales.
The eight changes proposed by the Coalition, presumably written by the banks, are:
1. Allowing commissions to be paid for the provision of “general advice”, as opposed to personal advice.
2. Making the annual fee disclosure statement apply only to new clients, not existing ones.
3. Allowing commissions to be earned on execution only services where the client has received personal advice from another individual in the same practice.
4. Allowing wholesale volume rebates for planners, including on basic super products.
5. Allowing commissions to be paid by banks on all basic banking products.
6. Extending exemptions to allow commission-based bonuses to be paid to employees.
7. Extending grandfathering provisions so that commissions can be traded freely between planners, without client approval.
8. Extending grandfathering to allow commissions to be rolled over when a client transfers from a super product to a pension on retirement.
These amendments add up to the comprehensive return of disguising sales as independent advice, which the advisers themselves have been trying to get away from.
Not only does it make them feel grubby and deceptive to pretend to be advising when they are actually selling stuff on commission, they know that fewer and fewer people will get advice if they can’t trust it.
The banks should of course be able to sell investment products and to incentivise the sales people with bonuses and commissions. But their sales people shouldn’t be able to pose as independent advisers.
Mathias Cormann seems to understand this, unless he’s doing a disguised sales job worthy of a conflicted financial planner. In his press release on Monday he said: “…we do not intend to reintroduce conflicted remuneration or sales commissions for financial advisers.”
Great. So get rid of the eight amendments listed above and make sure there is a clear distinction between advice and sales.