Yesterday was a good day for investors. Finance Minister, Senator Mathias Cormann, yesterday announced that the government's planned roll-back of the 'Future of Financial Advice' reforms would be put on ice while it considers feedback from stakeholders.
We can only hope Senator Cormann's common sense decision will result in the government permanently shelving the changes.
Of course, politicians of both stripes are lining up to spin the decision, but this isn't – or shouldn't be – a political issue.
Furious agreement… don't change FoFA
There has been a chorus of common sense commentary from right across the financial world. The likes of Ross Gittins, Michael Pascoe and Christopher Joye have all lined up against the flawed FoFA changes. Financial commentator and news presenter Ross Greenwood is another who has been vocal on the topic. On this very page as far back as October last year, we argued for the watering down of investor protections to be abandoned.
There is – or should be – a very simple approach to providing financial advice. Everything done by a financial adviser should be focussed solely on the clients' best interest, without the opportunity for that adviser to be corrupted by the offer of commissions from product providers. And to paraphrase the old saw, financial advice not only needs to be independent, but needs to be seen to be independent.
If my doctor received a kickback from prescribing certain drugs, would I be certain I was getting the best possible healthcare? And wouldn't there be a small minority who found it nigh impossible to ignore the money and have their judgement compromised by same? If my lawyer was being paid by someone else to provide legal representation, wouldn't I worry about their commitment to my cause?
Trust is paramount
So if my financial adviser is receiving commissions of up to 10% to recommend a certain product, or 2% to recommend a different product, can they really resist the lure of the extra money? And even if they are completely convinced that the 10% commission product was the best one, can I be sure of their motivations?
Aren't I entitled to have my adviser acting in my best interests? Aren't I entitled to receive honest and impartial advice? Shouldn't anyone trying to sell me a financial product have to be called a 'salesperson' rather than the independent-sounding 'adviser' or 'planner'? And shouldn't such a person need to be qualified? Aren't I entitled to have my adviser receiving money only from clients, and not from vested interests?
Put another way, why would product promoters pay commissions to financial advisers, if not to gain favour? These promoters aren't stupid. They wouldn't be paying money if it wasn't achieving their desired aims. If the product was good enough, and advisers weren't being paid commissions, they'd get the business anyway.
Australian investors deserve better
The financial services industry is littered with the wreckage of bad products and terrible advice.
I made this plea to Prime Minister Tony Abbott back in October:
"Mr Abbott, you took a commendable step in deciding that it was inappropriate for lobbyists to hold executive positions in the Liberal Party. Conflicts – and even the appearance or possibility of same – must be avoided.
"The individual investors of Australia deserve no less than transparent, conflict-free (including any appearance of and potential for same) financial advice. Please resist the temptation – and intense lobbying – of those who seek to protect themselves at the expense of their clients.
Foolish takeaway
I previously met with Senator Sinodinos, who had responsibility for the roll-backs and put these same concerns to him.
I am now calling on Senator Cormann to follow the imminently sensible decision to halt these changes with another sensible decision – to act in the best interests of individual investors and leave the FoFA changes in place. Australian investors deserve no less.
