Government confident opt-in plans for financial advice will pass, despite concerns from key MPs

The Federal Government is confident its plans to compel financial planners to sign up their clients every two years will pass, despite key MPs raising reservations about the idea.

A spokesman for Assistant Treasurer Bill Shorten told SmartCompany this morning that while it is “always more difficult” in a minority government to get legislation through, Labor is confident the plans will pass.

“It is good public policy,” the spokesman said.

In comments that cast doubt on the plans passing Parliament, independent MP Rob Oakeshott has told Eureka Report that the opt-in arrangement is a “problem for many smaller financial businesses in regional Australia.”

“I am considering amending this to at least five-year service agreements and would be interested to see if the Coalition wishes to go further,” he said.

Another key MP, Adam Bandt of the Greens, told the publication that while his party supported the “general direction” of the Future of Financial Advice package, it will be “looking closely at the opt-in arrangements.” According to the report, independent MP Andrew Wilkie has not made up his mind on the “complex reforms”, while fellow independent Bob Katter said he is awaiting debate on the issue.

The reforms, designed to stop advisers automatically receiving payment when they have not actually provided services to clients, were watered down from the one-year initially proposed.

The Future of Financial Advice reforms also include banning commissions on life insurance purchased through superannuation, and compelling financial advisers to act in their clients’ best interest.

The Government will also seek to ban volume-based payments to planners from financial institutions from July next year. Soft-dollar gifts of $300 or more are also banned under the package.

But Peter Johnson, executive director of the Association of Independently Owned Financial Planners, feels independent financial advisers are being unfairly targeted.

Johnson says Oakeshott’s five-year proposal is better than the Government’s two-year timetable, but no change would be best of all.

He says the proposal will slug independent financial advisers with an unnecessary legal and administrative impost. According to Johnson, the opt-in plan is unnecessary because most clients walk away if they feel they aren’t receiving value for money.

The Coalition this morning also welcomed Oakeshott’s comments, saying it was “pleased to see that Mr Oakeshott has recognised that these changes would hurt financial advisors and consumers.”

“We hope that he will also see the merits of our policy argument that banning commissions on risk insurance within superannuation would create inappropriate distortions in the market, reduce choice and increase costs for consumers,” Shadow Assistant Treasurer Mathias Cormann said.

“We look forward to working with Mr Oakeshott and other Members of Parliament to ensure that Labor’s latest version of FOFA proposals are amended to avoid increased red tape and costs for both financial advisers and consumers.”

But the Government expects negotiations with the cross-benchers and the Coalition to continue.

“The Government respects Mr Oakeshott’s views and we will continue to discuss this issue with him, the other crossbenchers and the opposition,” Shorten’s office said this morning.

“However, while it comes as no surprise that the financial planning industry is lobbying hard to try and protect their income streams at the expense of consumers, the Government is convinced that two years opt-in is a fair and equitable timeframe for consumers and financial planners alike,” Shorten’s office said.

“In fact, research from the Association of Superannuation Funds of Australia (ASFA) shows that nearly half of investors (43%) already have a formal review with their financial advisers once a year.”

“The Government doesn’t expect anything outrageous. All we are saying is what the best financial advisers already do – contact your clients every two years, tell them what you’ve done for them in that time, and ask them if they still want to get advice. How is that unreasonable?”

The Financial Services Council – which represents retail and wholesale funds management businesses, super funds, life insurance and financial advisory networks –  did not respond directly to Oakeshott’s comments this morning, but reiterated its preference for an opt-in period exceeding two years.