The Federal Government is planning a major shakeup of the Future of Financial Advice rules introduced by Labor.
Many of the changes would overturn reforms introduced in the wake of the Storm Financial collapse, in which some investors lost their life savings because of conflicted financial advice.
One of the proposed changes would water down a key provision to obliges financial advisors to always act in the best interests of their clients.
The Assistant Treasurer Arthur Sinodinos says that is just one area where Labor’s reforms went too far.
“Having a catch-all creates uncertainty, certainly in the minds of advisors, about whether they’ve done everything they can in the provision of advice,” he said.
“When you create that uncertainty, you don’t know how that will distort the behaviour and you don’t know whether that actually inhibits advisors from giving the best possible advice because they become particularly risk-averse.”
The Government also wants to remove the “opt-in” requirement, which forces financial advisors to contact fee-paying clients every two years to renew their contacts.
It would also scrap rules requiring financial advisors to disclose how much they charge clients in annual fees.
Senator Sinodinos says the reforms will save $90 million in implementation costs and cut compliance burdens by $190 million per year.
While admitting the overhaul will be challenging, he says consumers will be better protected.
“Nobody can ever guarantee in all circumstances that there will never be another financial collapse of any kind, or that advisors will in all circumstances give good advice,” he said.
“But what we need to do is have a system that maximises to prospects of good advice at an affordable price.”
The group representing industry superannuation funds is worried the changes will allow financial planners to once again receive sales commissions, paid for by banks and private super funds.
Industry Super Australia executive manager David Whitely says he particularly concerned about provision requiring advisor’s to act the best interest of clients.
“We’re very concerned that changes to the best interest test will result in creating loopholes which allow financial planners to once again receive sales commissions, ongoing fees, volume rebates and all sorts of other incentives to sell a product,” he said.