The introduction in parliament yesterday of a Bill to amend the FOFA reforms will do more harm than good for the financial advice industry and the consumers it serves unless consensus can be found, according to Industry Super Australia (ISA).
ISA chief executive David Whiteley said that in seeking to cut red tape, the government has not adequately taken into account the potential costs to consumers and the industry from re-permitting commissions through general advice and weakening the best interests duty.
“In one fell swoop, supposed red tape savings for businesses could be far outweighed by consumer losses and reputational damage to the industry itself,” Mr Whiteley said.
“Under the changes, commissions could once again silently erode retirement savings to the tune of hundreds of millions a year and reduce competition on the basis of product merit.
“The reduction in savings will have significant impacts for long-term age pension expenditures.”
While ISA welcomes the removal of the measure which would have permitted commissions on group risk insurance in super, Mr Whiteley stressed that many problems remain, most notably the repeal of opt-in requirements designed to keep advisers engaged with clients and protect consumers from paying for advice which they don’t receive.
“The proposed changes to the best interests duty contained in the Bill will mean that there will be no requirement to act in the client’s best interest in order to satisfy the legal test,” he said.
“The changes to the scope of the general advice exemption are minor and will still permit the payment of commissions on compulsory super, including MySuper products.”
Mr Whiteley suggested that rather than rushing to debate the Bills, government should bring together key stakeholders to find a sustainable outcome that reduces compliance costs without compromising key consumer protections.
“Such an outcome is achievable if common sense prevails,” he said.
“In particular, we continue to hold significant concerns about the government’s apparent determination to give immediate effect to these measures ahead of any parliamentary scrutiny.”
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