The financial services industry seems to be subjected to reforms every time there is a recession, as though the bad apples will be thrown out of the box with every new piece of legislation.
The Assistant Treasurer and Minister for Financial Services and Superannuation Bill Shorten said, "It is a concern that only one in five Australians access financial advice. These reforms will also remove the red tape that has prevented low-cost, good quality advice being delivered to millions of Australians."
The recently tabled reforms under the Future of Financial Advice, while noble in their mission, are failing in their policy.
One such failure, I believe is the “Opt-in” measure which will require a financial adviser to send a renewal ('opt-in') notice every two years to new clients, as well as an annual fee disclosure statement to all clients.
There are two key reasons why I think this is poor policy.
Firstly, there is already a system in place to deal with a customer wishing to disengage from services. In all industries, a dissatisfied or disgruntled customer talks with their feet – they take their business elsewhere. This is called “Opt-out” and it operates successfully across all market sectors.
Additionally, there are many consumer protections already in place that give customers the right to move away from a product or service provider and also seek recompense for perceived losses. In the financial services industry, consumers can refer complaints to a number of external dispute resolution schemes.
Secondly, the cost to an advisory practice to implement an “opt-in” process into their business will rise substantially limiting the capacity for an advice business to deliver services to the very people the reforms are designed to assist.
Yet despite current government funded research estimating the cost of opt-in to be around $11 per client, Treasury officials earlier in the year indicated to a Senate Committee they had seen industry research suggesting opt-in would cost around $100 per client.
A recent Money Management survey found that 89 per cent of respondents believed it would cost more than $50 per client.
Irrespective of the actual burden on an advisory practice and cost to the business, this policy allows consumers to continue to be disengaged from their financial lives, taking a back seat, remaining passive and financially illiterate and ultimately suffering in their greatest times of need, such as during market downturns and when claiming on insurance policies, as they will have no one to whom they can turn.
The opt-in reform runs counter to the best interests of consumers by increasing the cost for advice, increasing red tape and doubling up of existing systems, and thoroughly undermines the purpose and intention of the government’s proposed reforms.

AFA CEO, Richard Klipin, has labeled the opt-in component of the FoFA legislation paternalistic, patronising and against the national interest. In this video [click here], Klipin takes aim at what he describes as a “legislation that misses the point and serves sectional industry interests at the expense of the Australian consumer”.




Sources: evotv.com.au/nomorepractice; assistant.treasurer.gov.au; www.moneymanagement.com.au/news/fofa-opt-in-figures-don-t-add-up-for-financial-pla