A break in the gloom
They say significant things happen in threes and we’ve certainly witnessed that phenomenon over the holiday season.
More recently Australian sporting fans have been able to enjoy the 5-nil whitewash the nation’s cricket team inflicted on the old enemy during the Ashes Test Cricket Series, as well as the ability of Lleyton Hewitt to turn back the clock and defeat Roger Federer to claim the Brisbane International tennis tournament.
But perhaps it was the country’s financial planning community who enjoyed the greatest victory of all just before the close of 2013, when the federal government announced its amendments to the Future of Financial Advice (FOFA) reforms.
These amendments included the scrapping of the much debated and criticised opt-in requirements, the removal of the need to provide fee disclosure notifications to clients who entered the remuneration agreement before 1 July 2013 and the removal of the catch all provision to clarify the best interest duty obligations.
The planned changes once again demonstrate Assistant Treasurer Arthur Sinodinos is being true to his pre-election words of cutting the unnecessary red tape financial planners and small business owners were facing under legislation implemented by his Labor predecessors.
In particular, the removal of the opt-in requirements will be welcome news to the entire financial advisory industry as the positive impact of the move will have a threefold effect.
Firstly, and perhaps most obviously, it will reduce the administrative burden faced with running their practices by not having to comply with an obligation that added no commercial value at all.
Secondly, it will create more certainty for planning practices as many saw the obligation of an opt-in compliance component as an inducement for clients to actually opt-out of receiving on going advice.
And thirdly, it will allow planners a better opportunity to provide more cost effective advice as their administration costs will not rise and there will no longer be the perceived need to make initial advisory fees higher to mitigate the risk of losing a new client after two years should they choose not to opt-in for further advice.
However even though financial planners on the surface might appear to be the biggest benefactors of the announcement, the ultimate winners will surely be the Australian public.
In a landscape where the greater population is being under-advised financially, the changes have created a better opportunity for individuals to seek and receive affordable advice.
If the remainder of the FOFA reforms achieve what they are designed to achieve the quality of this advice will continue to improve as well.
If we combine the government’s FOFA amendments with its tiered approach to move the SG towards 12 per cent, both of these elements will continue to gain importance as good financial advice becomes a more critical component for all individuals.