The Australian government is facing intense challenge from banks and financial service providers to act on reforms of the financial advisers sector as crafted by the previous Labor government, collectively known as the Future of Financial Advice (FoFA).
The new government has recently asked Treasury and the Australian Securities and Investment Commission(ASIC) for advice on whether the Labor Law designed to minimize financial planners' conflict of interests should be watered down more than promised during the election.
Assistant Treasurer Arthur Sinodinos, who has an obligation to deliver the changes the Coalition promised during the campaign, will stand for the government to respond to the industry pressure.
The changes were designed to stop remuneration arrangements for
financial advisers, which for many years created a conflict between the interests of clients and maximizing advisers'income.
In a survey published recently, ASIC found only 23 percent of " stakeholders," including investors, consumers, brokers and government agencies, believed that financial advisers acted with integrity. Nearly a third of respondents suggested advisers were dishonest.
The Financial Services Council (FSC) has predicted that raising the reputation of financial advisers substantially could take more than five years, following another dismal survey of planners by the corporate regulator.
John Brogden, chief executive of the FSC, said he hoped to see an improvement in the standing of planners in two years'time.
However he warned it would take a long time for the overhaul of the advice sector to translate FoFA reforms into improved confidence in the planning industry, partly because the reform process uncovered all the ills in the sector. "No one should kid themselves that we have a long way to go in building trust. We have just gone through the reforms but we have not seen the benefits come through yet," said Brogden.
Industry Super Australia (ISA), which represents a group of large industry retirement schemes, has questioned claims that retail banking products were unintentionally caught up in the advice regime introduced in July this year.
"Ensuring that all advice channels within the vertically integrated banking sector were included in the reforms was an intentional and critical aspect of the design to ensure there were consistent rules across the sector," said Robbie Campo, deputy chief executive of ISA.
But ISA rejected the need for further exemptions to be granted to the banks.
"Unless there is clear evidence of the measures resulting in unintended onsequences, ISA would be concerned to see any further exemptions or dilution of the conflicted remuneration prohibition or best interest test, as it would compromise the integrity of the reforms," Campo said.
Former Superannuation Minister Chris Bowen argued that any watering down of FoFA will create more uncertainty and red tape for the industry and weaken investor protection.
"Labor will be carefully scrutinizing any proposed changes from the government in this area, especially where it goes beyond Coalition election promises," said Bowen.
The Australian Bankers' Association said it supported the FoFA reforms in principle but the industry has been concerned about the breadth of the provisions and the prescriptive nature of the changes.
"The FoFA reforms need to be directed at the business of financial planning and the provision of personal advice by financial planners, not banks and the business of banking," ABA's acting chief executive Tony Burke said.
Consumer advocacy group Choice's former chairwoman and spokesperson, Jenni Mack, said confidence in the superannuation system would be at risk if changes were introduced to the current FoFA regime.
Mack said,"We can't lose sight of why FoFA came in, it's because of Westpoint, Storm and Trio. Confidence in the government will be at risk, confidence in our super system will be at risk, FoFA was a package of reforms designed to address all of those things and give consumers peace of mind."