Government puts Future of Financial Advice reforms on ice

The government “paused” plans to immediately implement controversial changes to the Future of Financial Advice reforms yesterday following fierce opposition.

Finance Minister Mathias Cormann was handed back responsibility for the government’s planned changes to FoFA after assistant treasurer, Arthur Sinodinos, stood aside.

Cormann said in a statement the government “remains committed” to implementing its proposed changes to FoFA “as soon as possible”.

But while the legislation was before the Senate Economics Committee, Cormann said he decided to “pause” implementation of the regulations “to enable the government to consult in good faith with all relevant stakeholders”.

Cormann said the government is committed to restoring the balance between appropriate levels of consumer protection and access to affordable high-quality financial advice.

“The government is committed to the retention of the best interest duty and that we do not intend to reintroduce conflicted remuneration or sales commissions for financial advisers,” he said.

The FoFA reforms originally set out to ban commissions for financial advice, require financial advisers to ask clients whether they wish to continue receiving their service every two years and require financial advisers to act in the best interests of their clients.

But led by Sinodinos, the Abbott government moved to water down the “burdensome” reforms and announced many of the changes would be made by regulation not legislation, meaning there would be no scrutiny by a parliamentary committee.

Cormann appears to have blinked in the face of increasing opposition to the watered down reforms from the Financial Planning Association, National Seniors, Council on the Ageing, Choice and Industry Super Australia.

John Hewison, managing director of Hewison Private Wealth, told SmartCompany he applauded the government’s decision to pause the changes. 

“I think the direction the government was heading in watering down the submissions was completely wrong,” he says.

“I’m hoping the government abandons the exclusion of general advice from products on commission and it retains the best interest duty.”

He says the system as it stands is broken and advice needs to be separated from product. 

“Frankly the Australian consumer deserves to be able to obtain un-conflicted opinions and advice from a professional adviser when they are talking about something as important as their life savings,” he says.  

Legislation to impose the changes was introduced into the House of Representatives as part of the government’s repeal day.

But now the reforms have been referred to the Senate economics committee, which will report on 16 June.

Even if the laws do not pass the upper house, waiting for that report still leaves the government two sitting weeks to table regulations to force through its changes before Labor’s existing FoFA laws come into effect on July 1.