Stalling not in interest of the people who matter
Is meaningful reform of financial advice dead? Probably not but you might want to keep one of those jump-start things handy just in case.
Is meaningful reform of financial advice dead? Probably not but you might want to keep one of those jump-start things handy just in case.The 220-page joint parliamentary committee report on the government's proposed financial advice reforms, tabled this week, is notable not just for its length, and the inevitable presence of a "dissenting report" by Coalition committee members, but the apparent determination to quibble over details rather than work to get things done.I won't begin to bore you with some of the issues raised by sections of the industry and taken up by our elected representatives.Suffice to say that this wasn't just a case of not seeing the wood for the trees but not seeing the trees because of a fixation on knots in the bark.Yes, there are apparently genuine drafting problems but these bills are the result of two years of consultation between government and industry. If that can't produce a workable result, something is definitely wrong.The main take-out from the hefty volume is that the committee has largely backed the government's reforms, albeit with recommendations to make them clearer and more workable.The Coalition members made 16 recommendations of its own, the most contentious of which were requiring a full regulatory impact statement (there are currently six but they don't meet the government's best-practice requirements), deferring the start date until July 1, 2013 (currently July 1 this year), and dropping the so-called opt-in requirement and annual fee disclosure for existing clients. Opt-in will require advisers to ask their clients every two years whether they're happy to keep paying them.The fate of the legislation now lies, as it was always going to, in the hands of the Parliament, particularly the independents. One key independent, Rob Oakeshott, recently confirmed on the ABC TV's 7.30 that he was inclined not to support opt-in while the Financial Services Minister, Bill Shorten, has indicated there may be some movement on the implementation timing. The irony of this is if Shorten concedes to call for a 2012 start date - the same date the government's MySuper reforms are due to come in, with many arguing it makes sense to do the two together - it will be a full 12 months after the industry introduces its own ban on commissions, which is due to come in this year.You could argue the industry has known about these reforms for the past two years and should have had plenty of time to get its act together.But the ongoing debate over the legislative details, and the fact that the accompanying regulations (which will provide much of the nitty-gritty) have not yet been released, means at the very least the government will adopt the committee's recommendation of a soft easing in during the first 12 months.This would involve the Australian Securities and Investments Commission being asked to tread lightly with transgressions where a genuine effort was being made to comply with the reforms. So, where does all this leave consumers?The pity about all of this is that Australians are in desperate need of quality financial advice. The ageing population, combined with economic uncertainty, has created a wave of people approaching retirement with neither the financial skills nor the resources to achieve the lifestyle they are hoping for.High levels of household debt have also left many younger consumers looking for help in getting on top of their finances and better managing their money.But trust is a problem. If calls to the Herald are any guide, many consumers who need advice are put off seeking it by the conflicts of interest and sales culture. While good advisers do exist, how are consumers to identify them in an industry where the majority are owned by companies that produce financial products, are given incentives to sell products, and where many "fee for service" advisers are paid on the basis of how much of your money they can channel into financial products?And it certainly doesn't help that many people who once saw an adviser still find themselves paying for the privilege via trail commissions paid from their investments - even though they may not have heard from that consultant for years.The financial planning industry seems to think the government's proposed "best interest" duty - under which advisers will be required to act in their clients' best interests - will be the magic pill that restores trust and achieves their much-touted ambition to become a "profession". Many of them also believe in the tooth fairy.What consumers want and what the industry is structured to sell remain poles apart. Consumers' needs are simple. They want to be able to seek advice when they need it, to be charged accordingly, and to feel confident the advice is genuinely in their best interest and they will not just be sold product.The proposed reforms - which include the best-interest test, a ban on commissions and other "conflicted remuneration", a ban on percentage-based fees on geared investments, a two-yearly opt-in requirement and annual fee disclosure for all clients - may have their problems but they are aimed at addressing this gap. They are also generous in that most of the measures will only apply to new clients, not those who already have a relationship with an adviser. So the commission gravy train is being curtailed rather than abolished.After several years of debate, inquiry and endless consultations, the fact that the politicians and the industry still can't reach agreement does no credit to any of them.Worse, it adds to the perception that financial advisers, and the product issuers who often own them, want to maintain the status quo.It is time they stopped squabbling and put their heads together to genuinely make this package work for the people who matter.