There are fears the federal government’s plan to water-down financial advice laws could cost consumers millions of dollars a year.
Finance Minister Mathias Cormann temporarily froze in March a planned rollback of the previous Labor government’s Future of Financial Advice laws pending further consultations.
A Senate hearing on the proposed changes on Thursday was given research commissioned by Industry Super Australia that found proposed amendments to FOFA could cost consumers more than $530 million a year in increased fees and charges from the reintroduction of commissions and other conflicted payments.
That would mount to a staggering $7.5 billion over 14 years.
ISA chief executive David Whiteley said in a statement the analysis “debunks claims” that cutting consumer protections will reduce the cost of advice, but just increases commissions paid to financial planners to sell bank products.
However the Financial Services Council’s director of policy Andrew Bragg described the assumptions made in that survey as “quite brave”.
He believes the FOFA laws have “significantly overreached” the recommendations of an original parliamentary inquiry into financial advice, known at the Ripoll report.
FOFA as it stands is “ambiguous, inconsistent and extremely costly”.
FSC’s own survey of advice providers found the individual cost of holistic advice was $3049 pre-FOFA, but increased to $3751 post-FOFA, a 23 per cent increase.
If the Abbott government’s FOFA amendments are passed, these additional costs would be reduced by $235.
The Financial Planning Association of Australia banned its members from receiving commission payments on investment and superannuation products in 2009.
Its chief executive officer Mark Rantall believes the real issue for the proposed legislation being considered is not FOFA but “SOPA” – separation of product from advice.
“We cannot support this bill if commissions on general advice remain,” he told the hearing.
Senior groups are also wary of the changes amid a perception that advisers are working for themselves rather than their clients.
The issue goes beyond financial collapses such at Storm and Westpoint.
“We believe that many thousands of other people have had poor financial advice that has not been in their best interest and has not optimised their financial situation,” Council of the Ageing national policy manager Jo Root said.
But Australian Bankers’ Association executive director for retail policy, Diane Tate, rejected the idea that banks want to “gut” the FOFA reforms.
“That is simply not true. We believe in the `best interest duty’ and we believe that will continue under these (new) reforms,” she said.
A Treasury official told the hearing that consultations with interested parties are continuing.