FoFA. FoWha? What is the Future of Financial Advice and what does it mean for you?
The Federal Government is poised to introduce sweeping changes to the rules that protect investors from unscrupulous financial planners.
But these proposed amendments to the Future of Financial Advice (FoFA) reforms have drawn criticism from consumer groups, industry superannuation funds and the federal opposition, who argue the interests of mum and dad investors are being sacrificed to protect big banks and commission-driven financial planners.
So what do the proposed changes mean for you? Here’s a snapshot:
1. Bans on a range of commissions and bonuses will be lifted. Financial advisers giving general advice on financial products will be able to receive inducements from third parties to sell you their products. Critics argue this could create a conflict between the adviser’s financial interests and yours. Any such commissions or bonuses would not need to be disclosed.
2. Advisers providing personal advice will no longer be banned from receiving bonuses from their employers for selling their products – take, for example, a planner employed by a wealth management company that is owned by a big bank. This could again create a conflict between your interests and your adviser’s, potentially compromising the quality of the advice.
3. Advisers will be able to receive commissions from any third party if the client consents. Critics argue clients might not understand the risks involved.
4. Advisers will no longer be bound by a broad duty to act in the best interests of their clients. Instead, six specific tests will be introduced. These tests could potentially be satisfied, say critics, even though the advice is not in the best interests of the client.
5. You and your financial adviser can agree to limit the scope of the advice being provided. This is designed to reduce the cost of some financial advice, because an advisor would not be required to consider your entire financial situation.
Assistant Treasurer Arthur Sinodinos argues the changes will cut red tape for business, making financial advice more cost-effective. The Government has signalled it will implement the changes by regulation initially before legislation is brought before Parliament.
Have you been burnt by bad investment advice? How did it affect you? Do you think financial planners should be able receive bonuses and commissions?
