Advice firms hit 'undo' button on FOFA
The process of 'undoing' FOFA compliance work represents a big opportunity cost for financial advice firms, according to platform provider and dealer group parent Netwealth.
While he welcomed the government's amendments to the new regulatory regime, Netwealth executive director Matt Heine said they had created even more internal work for his firm.
As an example, he pointed to the previous ban on conflicted remuneration (i.e. commissions) within group insurance.
“The [previous] government took the view that any group insurance must be automatic acceptance, therefore the adviser hasn’t justified the fee. But most of the industry in the retail space had group policies and they were being individually underwritten,” said Mr Heine.
The Coalition's announcement on December 20 recognised the work associated with individually written group insurance policies and has reversed the ban on commissions, he said.
“So we went through the whole process with our underwriters to actually redesign that product to remove all of the conflicted remuneration, only to be told now that they’re going to be okay moving forward,” Mr Heine said.
Netwealth has sent out “a lot of communication” to advisers explaining how they need to operate under FOFA.
“We now need to go back and explain that, 'Well, everything we said back in November’s now wrong; we need to go through and retrain you on what will actually be allowable',” he said.
The extra work represents an opportunity cost for Netwealth, since the firm could be focusing on other areas of its business, he said.
But the confirmation that advisers can move between licensees whilst retaining grandfathered benefits will have the biggest impact on the industry, said Mr Heine.
“I think the institutions have the most to lose as a result of it, because they effectively took the viewpoint that their advisers were locked in,” he said.
“[The institutions] put in place a lot of rules and policies that advisers may not have agreed with, and [advisers] now got the opportunity to walk if they’re not happy,” said Mr Heine.
“The power has certainly shifted back to the adviser,” he said.
Meanwhile, in September last year, CBA executive general manager, advice, Marianne Perkovic said the bank had already stopped implementing processes for compliance with the opt-in requirement, anticipating government amendments.
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