Financial advisers support government bans on commissions, but opt-in rules a stumbling block

Rules that would require financial advisers to get clients to “opt-in” to their services every two years remain the most contentious part of the Government’s Future of Financial Advice reform, draft legislation for which was released yesterday.

Assistant Treasurer Bill Shorten has won support from industry on the key planks of the FoFA reform package, which include a ban on commissions, a new fiduciary duty for planners to act in the best interests of clients and new power for ASIC to ban planners who breach the new rules.

But the issue of forcing planners to ask clients to “opt-in” to services every two years, and send them a fee schedule every 12 months, could prove a stumbling block for the entire package.

The Coalition, under pressure from the financial planning sector, has indicated it will not support the “opt-in” rules in Parliament, while key independents Rob Oakshott and Tony Windsor are also opposed.

“Anything that discourages people from seeking good financial advice in a country where we need to encourage more people into financial planning should be viewed with caution and opt-in is one such area,” Oakshott said yesterday, describing the rules as “the bad apple in the reform barrel”.

Without the support of Oakeshott and Windsor, the “opt-in” rules may delay the passage of the FoFA package, due to be put in place from July 2012.

Shorten has already tried for something of a compromise on the issue, announcing yesterday that the “opt-in” rules will not be made retrospective – that is, advisers will not have to contact existing clients every two years.

But his claims that the “opt-in” rules will cost planners as little as $11 per client have been questioned by Association of Financial Advisers, which says its research suggests costs will be $100-250.

AFA chief Richard Klipin says this will hit SME financial planners hard.

“This is the reality in the client adviser relationship, which is essentially small business territory. Opt-in will drive costs up for consumers, entangle them in red tape and reduce their access to advice.”

However, not everyone is against the “opt-in” rules – accounting groups CPA Australia, the Institute of Chartered Accountants in Australia and the Institute of Public Accountants all released a joint statement praising the move.

“The inclusion of the two year ‘opt-in’ requirement and an annual fee disclosure notice will ensure transparency in the relationship between a financial planner and client, and will also encourage consumers to be more actively engaged in their financial future.”

Shorten says a second tranche of reforms – which will specifically address bans on commissions – will be released “shortly”.