FOFA II? Pushback from rentseekers begins anew

They’re back: the deadenders of the financial planning industry who bitterly fought efforts to improve financial advice a decade ago are once again assembling to try to stop the implementation of the Hayne royal commission recommendations.

The “Association of Independently Owned Financial Professionals” (AIOFP) is now threatening a High Court challenge to any ban on commissions, as recommended by Hayne and agreed to reluctantly by the Morrison government (which wants to delay a ban until into the 2020s because the financial planning profession are traditionally Liberal voters).

The AIOFP are the deadenders who fought the Turnbull government’s efforts to professionalise the financial planning industry. Association head Peter Johnston risibly threatened politicians with the wrath of “25,000 advisers, 75,000 support staff and 3 million satisfied clients against them at the next election.”

Finding 300, let alone 3 million, satisfied clients of financial planners in the wake of the royal commission might be a challenge. Kenneth Hayne produced a rogue’s gallery of advisers, both bank-aligned and independent, with very skewed ideas about satisfying their clients. Like celebrity planner Sam Henderson — now pursuing other interests — who pushed most of his clients into his own funds, offered advice that would have led to a loss of $500,000 for one client, admitted he might have told his staff to impersonate this same client, and who jacked up when his professional association pursued the client’s complaint against him. Or Terry McMaster — he of the witness box collapse — whose company was stripped of its Australian Financial Services Licence, who had a “client protection policy” designed to protect his company, not his client, and who threatened a complainant with defamation. Or there were the thousands of planners who enjoyed the defining lurk of the royal commission — being paid fees despite providing no service.

There are high-quality, professional planners who take their obligations to their clients seriously, and who have been happy with the industry’s move toward professionalism and more rigorous standards. But there remain deadenders, of the kind who ferociously opposed the Future of Financial Advice (FOFA) reforms a decade ago and have opposed or tried to undermine every reform since then, whether this be efforts to improve the professionalism of planners or the establishment of a Financial Complaints Authority.

Johnston’s High Court action to prevent a ban on commissions will almost certainly be a waste of money. Kenneth Hayne — AKA former federal court judge Kenneth Hayne — demolished the unconstitutionality argument about banning commissions in his interim and final reports. As Hayne put it:

Whenever change is mooted, someone will suggest that changing the permitted forms of remuneration would lead to constitutional difficulties because it would amount to an acquisition of property otherwise than on just terms. As I said in the Interim Report, two points must be made.

First, where would be the acquisition? Who would acquire anything? What proprietary benefit or interest would accrue to any person? Second, if the point is good, it was good at the time when most forms of conflicted remuneration were prohibited. Yet no one sought then to challenge the validity of the relevant provisions and the Future of Financial Advice (FOFA) ban on conflicted remuneration has now operated for more than five years without challenge.

Deadenders insist that without commissions Australians will be left bereft of financial advice because planners are too expensive for upfront fees. Problem is, the experience of the United Kingdom directly discredits the idea that affordability is any sort of intractable problem. The Brits banned commissions for financial advice in 2013 and in 2015 established the Financial Advice Market Review (FAMR) to examine the issue of the accessibility and affordability of advice. A report in August 2018 looked at how the UK planning industry had fared recently. Inconveniently for the deadenders, the study showed there’d been a surge in the number of people seeking financial advice in 2018, while the number of financial advisers had actually risen and revenue and profits for financial advice firms had increased significantly over the last two years.

Much of the increase was down to efforts by the UK government to encourage the provision of streamlined, low-cost advice for people with relatively small savings (whom financial advisers generally prefer not to deal with because they can’t make much money from them), the development of robo-advice for people with limited or straightforward financial planning needs, or even government-provided advice services.

The threat of Australians being priced out of financial advice is an empty one — or should be for any faintly competent government. But as the FOFA debate demonstrated, vested interests and rentseekers never go down without a fight.