Finance Minister Mathias Cormann insists his changes to financial advice laws will not result in the reintroduction of commissions to push dodgy products.
The minister’s decision to push ahead with amendments to the previous Labor government’s legislation has been welcomed by the financial services industry, but consumer groups remain unconvinced that there will be sufficient protection to avoid another financial disaster.
Labor introduced the so-called Future of Financial Advice laws, or FOFA, after collapses like Storm Financial.
Senator Cormann said changes will include the removal of the costly and ineffective `opt-in’ requirement, which forces investors to complete unnecessary paperwork, while also providing clarity and certainty to the `best interest duty’ of financial advisers.
They also aim to provide access to more affordable financial advice through `scaled advice’.
“We have always said it was not our decision to bring back conflicted remuneration, it was not our intention to bring back commission payments for financial advisers,” Senator Cormann told ABC radio on Friday.
Changes will be implemented through regulation to take effect on July 1.
Australian Bankers’ Association chief executive Steven Munchenberg believes that changes strike the “right balance”, while Financial Services Council chief executive John Brogden said the government has clearly demonstrated that commissions are banned.
“It is written in black letter law,” Mr Brogden told ABC radio.
Financial Planning Association CEO Mark Rantall said the amendments are sensible and maintain a “high bar” on protections that are also practical and efficient, and described as a decisive victory in favour of all consumers.
But Industry Super Australia chief executive David Whiteley is not convinced, saying consumer protections should be ironclad, not subject to fine print.
He believes the changes permit a range of kickbacks for advisers, such as bonuses and commission-like percentage based fees.
Consumer advocate CHOICE is particularly alarmed at that removal of the opt-in clause, because one of the biggest problems has been clients being charged fees for years after the adviser has stopped providing advice.
“Conflicted and poor financial advice has cost consumers billions and in too many cases led to people losing their homes and life savings,” CHOICE chief executive Alan Kirkland said.
Shadow treasurer Chris Bowen welcomed an apparent backdown by Senator Cormann to make it crystal clear commissions wouldn’t be allowed.
But he said Labor still has “deep and ongoing” concerns about the government’s approach that undermines and unwinds important consumer protections and also creates instability.
“We will not let this government water down important consumer protections,” he told reporters in Sydney.