“They will not eliminate the rogues and other crooks.” Laura Menschik, WLM

The proposed federal government Future of Financial Advice reforms promise reassurance for investors. But critics warn that many will find little difference.

MORE paperwork and higher upfront fees for initial advice are likely outcomes should the Future of Financial Advice proposals be passed by federal Parliament and implemented from July 1 next year, financial planners say. But not too much else will change.

The financial planning industry welcomes many of the proposed changes, including the banning of dodgy entry fees and trailing commissions on retail investment products, more industry education and greater clarity in the definition of the industry.

But when you visit your financial planner after these reforms are introduced, don’t expect the world to have changed. That’s because many of the proposals are already standard practice among financial planning industry professionals.

The changes are also being introduced by Assistant Treasurer and Minister for Financial Service and Superannuation Bill Shorten, in part on the basis that they will provide more protection to consumers following the dramatic collapses of various financial advisory doghouses such as Storm, Trio and Westpoint. The unanimous industry verdict is that the changes will make little difference to this.

That doesn’t mean the reforms are not positive: just don’t take it for granted you will necessarily be better protected once they are introduced.

Laura Menschik, managing director of WLM Financial Services, says: ”We welcome the reforms as they create a level playing field and add a higher level of professionalism but they won’t eliminate the rogues and other crooks; they are in every profession and they will still find a way to operate and do damage.”

But let’s not get dragged away from the benefits, other than to say that much of what is being proposed could and should have been introduced a decade ago.

The Future of Financial Advice reforms are still better late than never.

Mark Rantall, chief executive of professional body the Financial Planning Association, says many of the proposals – such as the fiduciary duty to put the client ahead of the adviser’s own interests – are now standard practice for an association member.

”The FPA has also long been calling for further initiatives to improve access and affordability of financial advice to more Australians and supports the announcement to adopt a uniform and consistent approach so that all financial planners have the ability to provide scalable advice to more Australians,” he says.

That’s advising them on a specific part of their financial situation and paying an appropriate fee for this service, rather than considering their entire financial situation – many practitioners do this already in a less formal fashion.

But here’s the rub. Since much of it is already good practice for the vast majority of those with the Certified Financial Planner qualification and who are a member of the FPA (about half of the 16,000 financial planners in the country), some parts of what is being proposed also result in costly overkill, according to Paul Moran of Paul Moran Financial Planning.

He’s talking about the requirement to ”opt in” for professional advice every two years. As he, Ms Menschik and Mr Rantall point out, a client has the option to ”opt out” of their arrangement with a financial planner at any time already, and particularly when they consult with them, which on standard practice is at least once a year.

According to the federal government information pack, the ”opt-in” proposal every two years reflects the need to ensure advisers do not charge open-ended fees, in which the client is receiving little or no service, and prompts the client to reconsider whether they are receiving value for money.

But Mr Moran says the banning of entry fees and trailing commissions is being introduced at the same time and essentially achieves this already.

”The issue of opt-in was initially designed to counter the problem of advisers receiving passive income from client accounts without any requirement to provide any advice services,” he says.

”This only really occurs where a trailing commission is paid and the product provider supplies no option for the client to opt out of the fee. The ban on commissions effectively terminates this arrangement so I fail to see how requiring clients to formally re-agree to a fee that they already make a decision on each time they meet with their adviser will benefit the relationship.”

The FPA’s Mr Rantall says the cost of issuing this ”opt-in” contract has been estimated at $100 a time, so with 3 million people taking financial advice, it will cost an additional $300 million every two years.

Still, the thrust of these reforms is good and needed – and no one disagrees with that.

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