Reforms kill off advisers
The government's draft legislation to end commissions will raise the cost of financial advice without fixing the real problems.
The government's draft legislation to end commissions will raise the cost of financial advice without fixing the real problems. FEE, fi, FOFA! I smell the blood of a financial adviser, only this is one fairytale without a happy ending.And nary a golden egg in sight.FOFA is the acronym-loving government's Future of Financial Advice reforms, which will come in several legislative instalments, naturally containing more regulations and red tape, the highlight of which is banning commissions to financial planners.Or, same thing, giving union-run industry super funds a leg-up.Either way, "more Australians will seek financial advice following the announcement of the draft legislation", says the Assistant Treasurer, Bill Shorten, who, if he believes that, must be daft.While I'm no fan of commissions, at least they give access to an adviser without a hefty fee.Sure you're billed more furtively - there's a trailing commission year in and year out which comes out of your return - but I suspect those who most need a financial adviser don't go because they can't afford the upfront fee.Up in the clouds of FOFA, an adviser who was previously paid by commission for selling an investment from a fund manager will charge the client directly.So a $500 commission you never see becomes a $500 upfront fee for services provided. True, you're paying either way but I'm blowed if I can see how getting a bill on the spot is going to lure more Australians to an adviser.On the contrary, anybody I've ever sent off to an adviser returns regaling me about how they'd be charged $3000 for a financial plan.Truth is, it's probably the best investment they'll ever make but you try telling them.Certainly, there's an incentive for advisers to flog products when the better advice might have been to pay down the mortgage or postpone the holiday in Hawaii, for which they don't get paid.FOFA won't fix that.The fee in the new order, would you believe, can be a percentage of how much is invested.That's the same deal really, since the more you part with the higher the commission, sorry, fee.And it's not as if hidden commissions will disappear anyway. One of the biggest lurks is the fee-infested platforms sold by fund managers and banks - glorified computer programs that make it easier for advisers to flog financial stuff.Commissions paid by platforms to advisers will be banned but not providers to platforms.To get in this lucrative little business, advisers need to produce their own platforms. In FOFA-land they have to get big or get out.No wonder so many are shutting shop or selling out to banks, as in the Commonwealth's bid for Count.I can't see how having just about every adviser work for a bank or a big institution will foster better advice.Advisers must put their clients' interests first, which is supposed to stop them pushing the bank's own product.Sure. I've never heard of somebody going into a Westpac branch and coming out with an ANZ loan and commissions don't come into it.But the true tragedy of FOFA is the missed opportunity. The black hole of the system is that anybody who puts up a half reasonable front can rent a financial licence.As Storm and Trio showed, safeguards are never policed until it's too late.And don't get me started on the way retirement advice is skewed towards allocated pensions instead of fixed-income annuities, throwing retirees to the mercy of the market.