With the financial planning industry going through massive transformation and publicity for all the wrong reasons, we asked CEO and Founder of AdviceMarket, Spiros Christoforatos, to run through what the reforms are in the financial advice world and why they are happening. This is the first in a series of three guest blogs he’ll be doing for Mozo to guide you (and us) through the changes and what you should look for in a financial planner.
I’ve spent over 30 years in the financial planning industry and I don’t believe it’s all “doom and gloom”. The vast majority of financial planners do the right thing and love helping their clients. Unfortunately, it’s just those very few that have given the industry and profession a bad name.
The GFC was a near catastrophic event for many economies and investment markets around the world. Though we came out of it relatively unscathed, Australia was not immune. As the dust was settling post GFC, more and more issues related to poor advice were coming to the surface.
Unscrupulous financial planners had given their client’s poor advice as they were looking out for themselves rather than their client’s best interests. As these issues were playing out within the walls of the financial planning businesses, regulators were being told about wide ranging bad practices within organisations.
Some of these were believed to be systemic issues such as “remuneration being linked to product sales” to the “lack of appropriate supervision of financial planners and the advice they were providing clients”.
As a result, in late 2009, the Rudd government announced reforms to financial advice with the goal to “improve the trust and confidence of Australian retail investors in the financial planning sector”.
Future of Financial Advice Reform (FoFA)
The reforms, known as the Future of Financial Advice (FoFA), are being followed through by the Abbott government. FoFA reform was driven by the then government’s response to the Parliamentary Joint Committee on Corporations and Financial Services “Inquiry into financial products and services in Australia”.
Chris Bowen, the Minister for Financial Services at the time, said “FoFA reforms are designed to tackle conflicts of interest that have threatened the quality of financial advice that has been provided to Australian investors, and the mis‑selling of financial products that culminated in high profile corporate collapses such as Storm Financial, Opes Prime, and Westpoint”.
He also said “these reforms will see Australian investors receive financial advice that is in their best interests, rather than being directed to products as a result of incentives or commissions offered to the financial adviser”.
Needless to say, those reforms have now been, and continue to be implemented. However, the fallout continues with the well-publicised Commonwealth Bank Financial Planning debacle and only a few weeks ago the NAB was in the news after it was reported they had paid out millions of dollars in compensation to around 750 clients for inappropriate advice given by planners across their stable of firms.
The industry is working with the government to improve financial planning practices, supervision and image. One example is the higher education standards that are expected of planners. No longer can someone go and do a one week course and call themselves a financial planner. Overall, the reforms and the extra vigilance by regulators are producing the desired result. But, it will take time and patience so the risks to the consumer of selecting a rogue planner are still present.
Want to know more about financial planning in Australia? Stay tuned for Financial planning part 2: How do I find a credible financial advisor?