The Labor government has moved to reassure members of Australia’s financial advisory sector of the benefits to investors, rather than industry cost burdens, of its advice reforms.
Parliamentary Secretary to the Treasurer Bernie Ripoll outlined seven key benefits the Future of Financial Advice (FOFA) reforms would afford the industry as part of his address to an Institute of Public Accountants (IPA) cocktail event on Wednesday.
Ripoll listed more engagement with clients; a more competitive advice market; greater availability of advice; reduction in product fees; and removal of non-complying advisers from the industry as among the key benefits.
“While FOFA has attracted a vocal amount of criticism from a minority within the industry, I am pleased that the vast majority of the industry has already moved to adopt these reforms,” Ripoll said.
“For many in the advice industry the FOFA changes are business as usual. Much of the criticism has been around the impact that FOFA will have on the quantity of advice given and therefore on employment within the industry.
“While some see only a potential threat offered by FOFA the government sees an opportunity for the industry.”
It is the government’s belief that a post-FOFA industry will “grow to be well placed to meet the increasing need for quality financial advice demanded by an ageing population”, he said.
Ripoll quoted figures from a Rice Warner January 2012 report that found by 2025/2026, 1.77 million pieces of advice “will be provided – more than double the 831,000 pieces of advice under a ‘no reform’ scenario”.
Despite beating the government’s drum over the reform, Ripoll also acknowledged the impact the reforms will have on the way financial advisers go about their business.
“There will be some compliance costs for businesses as the industry makes this transition, but these are necessary to secure improved consumer outcomes,” he said.
“The benefits to consumers are expected to outweigh the costs significantly. This will lead to greater trust and confidence in the finance industry and in turn more work in the sector.
“The government is mindful of the need to minimise ongoing compliance costs as much as possible, and has taken steps to reduce unnecessary red tape.”
Ripoll referred to the government’s watering down of its opt-in provision, and “principles-based” approach to its ban on commissions as examples.
“The government is positive the benefits of reform will far outweigh the cost and the overarching benefit of professionalising the sector will continue to benefit the financial services sector,” he said.
“As with any significant structural reforms there will be costs associated with the implementation of FOFA. Industry will face costs when restructuring their administrative and IT systems in order to comply with the requirements. However, because the reforms will not apply to payments that pre-date the legislation, implementation will be gradual and costs reduced.”
Ripoll also touched on the proposed accountants exemption changes.
“As the government has announced, the exemption will be replaced with an appropriate alternative, and I know that Treasury and ASIC are working closely with accounting bodies in developing this alternative,” he said.
“While the details of this measure are a matter for Minister [for Financial Services and Superannuation, Bill] Shorten, I can assure you that the government is conscious of the concerns of the professional accounting bodies, and is working hard to ensure a workable transition for the profession to the new arrangements.”
