In a FOFA preview less than a week before the changes come into effect, Mr Baker also pointed out that despite the wide-ranging reforms aiming to make the industry more accountable and ethical, the regime won’t necessarily result in more wealthy Australians.
However, if it diminishes the largesse of those selling financial products, that’s not such a bad outcome, he added.
“FOFA may not result in a lot more yachts for Australian investors, and self-direction is no guarantee of that either,” he said. “But it may make them a bit scarcer for those selling financial products. Overall that’s no bad thing.”
Mr Baker also cautioned the industry not to expect a likely change of government in September to greatly diminish FOFA’s impact. If there is a change, it’s more likely to be the speed of change rather than the direction, he added.
He described the changes as “perhaps the most far-reaching industry reform since compulsory superannuation”, leaving the Stronger Super reforms in the shade.
While it will take years to see the full effects, key parts of the reforms have had a major impact already, he said.
The unbundling of commissions and product pricing has removed the advantage of the not-for-profit sector and has resulted in significant drops in go-forward retail product pricing.
Changes to remuneration models have created a unique situation where sales staff can’t be remunerated based on sales success, meaning wholesale changes to assessment and reward structures.
The conflicted remuneration measures have begun reshaping business models and pushed more vertical integration – such as the purchase of Count Financial by CBA – showing how hard it would be for businesses based on old remuneration models to transform for a post-FOFA world.
The reforms are also reshaping institutions more broadly, with many taking a conservative approach and re-setting the relationship between institution and planner in favour of the institution, he said.
