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Australia’s leading consumer law firm has warned proposed changes to the financial advice industry may leave consumers exposed.
Future of Financial Advice (FOFA) reforms became mandatory on 1 July, 2013. The reforms were designed to protect consumers and to ensure financial advice given to them was in their best interests.
FOFA will be wound back under proposed new Federal Government changes announced today.
Slater and Gordon professional negligence Lawyer Jessica Latimer said reforms to the FOFA legislation do not adequately protect consumers from financial advisors who may not have their clients’ interest at heart.
Ms Latimer said Slater and Gordon was particularly concerned about the proposed Government plan to water down the “best interests” duty by removing the catch-all provision.
“The best interests duty fundamentally changed the financial advice industry and improved consumer protection provision, requiring advisors to put their clients’ interests first,” she said.
The ban on “conflicted remuneration structures” will also be amended to allow payments of some benefits or commissions to financial advisors and permit the payment of bonuses in some instances.
“Slater and Gordon has acted for thousands of investors who have lost their life savings by investing in products recommended to them simply because those products paid a healthy commission to their financial advisor.
“Products like Timbercorp and LM Investments are prime examples of why protections are desperately needed – both products offered attractive commissions to financial advisors, who recommended them to their clients – in some circumstances where it those products were not appropriate at all,” Ms Latimer said.
The Government also plans to remove the “opt-in” requirement which would have forced financial advisors to get their client to sign a new agreement every two years to continue to provide advisory services.
“Pre-FOFA, it was the case that some financial advisors continued to receive trailing commission fees for products recommended years earlier despite never speaking with their clients,” Ms Latimer said.
When more details have been released it will allow the industry and the legal profession to assess the full impact of these changes on existing consumer protection measures.