Unnecessary FOFA costs must go: CBA


By Kate Kachor

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A Senate review of the federal government’s advice reforms must consider stripping out excessive implementation costs or risk harming the level of Australia’s retirement savings, according to Commonwealth Bank of Australia (CBA).

In its submission to a Senate committee examining the Corporations Amendment (Streamlining of Future of Financial Advice) (FOFA) Bill 2014, a CBA senior executive raised concerns over the provision of advice and costs to consumers under the government’s FOFA amendments.

While the bank said it was supportive of the “overall aim of the original FOFA reforms”, it was concerned some aspects of them created unnecessary complexity and were a burden for the industry.

“CBA WM (wealth management) believes in the value that quality financial advice can have on the impact of the retirement income of Australians. However, quality financial advice must be affordable to ensure all Australians are able to access it,” CBA wealth management advice executive general manager Marianne Perkovic said.

“Unfortunately, the current legislative framework as amended by FOFA does not assist consumers to access advice at a reasonable cost, and this is likely to impact the level of retirement savings consumers can enjoy.”

Perkovic quoted Investment Trends research that indicated the existence of a disparity between the cost of providing advice and a typical client’s willingness to pay.

The typical cost to industry for full service financial advice was $2400 or $1100 for more limited advice, she said.

The customer expected to pay a maximum $500 for modular advice, or piecemeal advice, and $450 for limited advice, she said.

“The regulatory impact statement accompanying the bill indicates the government’s refinements to FOFA will deliver initial cost savings to industry of around $90 million and annual cost savings of $190 million,” she said.

“In removing unnecessary costs associated with implementing part of the FOFA reforms, the bill also maintains strong consumer protections expected by financial advice clients and encourages the delivery of affordable advice to the community.”

CBA said it supported the removal of the opt-in requirement, the retrospective nature of the fee disclosure statement and the catch-all provision from the best interests duty.

It said it was also in favour of the government’s amendments to the best interests duty to allow for the provision of scaled advice, the exemption of general advice from the ban on conflicted remuneration and clarifications to grandfathering arrangements.

CBA wealth management has been publicly criticised for its quality of advice in the past, with the group entering into an enforceable undertaking agreement with ASIC in 2011.

However, Perkovic said the division had “embraced the spirit” of the FOFA reforms, having implemented significant changes.

Financialobserver reported in November last year that CBA spent $25 million to reform its Commonwealth Financial Planning division.

The committee is due to report its findings on 16 June.

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