Financial planner reforms will disproportionately hurt SMEs, independent advisers say

Independent financial advisors say that Government reforms of the sector will disproportionately hurt small- and medium-sized enterprises in the sector.

Bruce Brammall of Castellan Financial Consulting says the requirement for financial advisors to ask their clients to “opt-in” for their service every two years would be expensive for SME financial advisors and planners.

“If you’re talking at the advisor level, it will impact smaller businesses rather than bigger businesses,” he says.

“For the large players, they’ve got systems in place to get this stuff out at a minimal cost to them.”

Brammall praised the decision by Financial Services Minister Bill Shorten to shift the opt-in requirement from every year to every second year, describing it as a “commonsense decision.”

But consumer group Choice has criticised the lack of retrospective application of the opt-in rules, saying they will not provide adequate protection to consumers.

The wide-ranging Future of Financial Advice reforms include banning commission payments and asset-based fees on geared funds, improved licensing and banning powers for the corporate regulator and requiring advisers to act in their clients’ best interest. They follow the collapses of Storm Financial and Trio Capital.

They were announced in June 2009, but are yet to fully pass parliament despite a July 1 starting date.

Association of Financial Advisers chief Richard Klipin says the FOFA package will hit the SME financial planning industry.

“This is the reality in the client adviser relationship, which is essentially small business territory. Opt-in will drive costs up for consumers, entangle them in red tape and reduce their access to advice,” he says.

Peter Johnson, executive director of the Association of Independently Owned Financial Planners, concurs.

“The Government doesn’t need to force a contract between consumers and a business… We think that’s ridiculous, and we hope sanity will prevail,” Johnson says.

Shorten’s office this morning said the Minister was “open to considering whether further transitional arrangements are required”. It also says that by making financial advice more affordable, this will encourage more Australians to seek financial advice. At the moment, most Australians do not do so.

With cross-bencher Rob Oakeshoot and Greens MP Adam Bandt last year raising concerns about elements of the bill, Johnson says whether the opt-in reforms get up will depend on “the spine of the independent politicians.”

Johnson is hopeful a delay in the implementation of the reforms will force the Government to drop or minimise many of their controversial aspects.

“We believe the reforms will be deferred for 12 months, to 2013,” Johnson says. “And the federal election is due three months later. We can’t see the Government going in and getting 30,000 people offside then.”