20 Dec
Government’s financial advice rules rollback Christmas present for banks and insurers
Just when consumers thought the bad old days of financial planning were almost over, comes the neutering of Labor’s hard-fought reforms.
Under the Future of Financial Advice reforms planners would have been put under a legal obligation to act in their clients’ best interests. The weakening of the obligation is the most worrying of the government’s proposed amendments.
The obligation gives consumers comfort that advisers will act only in their best interests. The government wants clients to be able to sign a contract with the adviser to limit the best interest obligation to the advice being given.
Many of the worst financial planning disasters have been where the financial planning firm offered only one type of advice – such as borrowing to invest in shares or to invest in property.
Under the government’s proposal, advisers could continue to give this one-size-fits-all advice, while having the client agree to limit the scope of the best interest obligation to that advice instead of covering their overall financial position.
Clients are unlikely to fully understand the implications of what they are signing.
...... Limiting the legal obligation would make it much easier for advisers and bank tellers to flog financial products. The banks and insurers, which employ more than 80 per cent of financial planners, have lobbied hard for the watering down of the legal obligation. They know the legal obligation, as written, would have disrupted sales-orientated financial planning.
The reforms followed a parliamentary inquiry into financial advisers and painstaking negotiations and compromises to get the legislation passed by parliament.
The inquiry itself was prompted by a string collapses over many years, including Storm Financial, involving planners and the role of commissions that have cost investors, mostly retirees, billions of dollars.
......Winding back the reforms is not in the interests of consumers nor is it in the interests of financial planning profession.
The public is wary of seeking advice after the financial planning scandals. A survey carried out on behalf of the Australian and Securities and Investments Commission, released in September, that included the opinions of ordinary investors, found only 23 per cent of respondents said planners were ‘‘operating with integrity’’.
The Future of Financial Advice reforms would have helped increase trust. What we have here in the government’s proposed amendments is the interests of the powerful overriding the interests of a disengaged public.
It is a Christmas present from the government to the banks and insurers. The main justification by the government is that the changes will save the banks and insurers millions of dollars in the costs of complying with the reforms.
That would make advice cheaper and more accessible for consumers. Do not be surprised if the supposed cost savings accrued to the banks and the insurers instead.
http://www.smh.com.au/business/comment-and-analysis/governments-financial-advice-rules-rollback-chri...
