To understand the FOFA changes you need to understand how Financial Planners are licensed.
All Financial Advisers are an Authorised Representative (AR) of a holder of an Australian Financial Services License (AFSL).
You can also have Corporate Authorised Representative, which just means that the holder of an AFSL has granted a company the permission to trade using their AFSL.
These companies can then issue AR’s to their internal advisers but the unlimited responsibly is on the holder of the AFSL.
The issue for the consumer is that it is difficult to know if the advice or product being recommend is in your best interest.
Who your adviser is licensed with may influence the products they offer to you.
The majority of advisers in Australia are licensed through the Big Four Banks and AMP, which mean that their advice will generally direct you towards their products.
This is called Conflicted Advice and may not be in your best interest.
So how do you get “Conflict Free Advice”?
The ASIC does not allow independent AFSL holders to use the word “Independent” in any advertising. So there are two basic things you need to do:
1. Look for a Financial Adviser who advertises as “Conflict Free Advice” this generally means that they hold their own AFSL and are independent of the major banks and AMP. This means that the advice and products they offer are in your best interest.
2. Spend the time to follow the trail of how the adviser is licensed. This can be done on the ASIC site using this link but be prepared to spend some time searching.
Most conflict free adviser firms are easy to spot as the AFSL License is normally in the same name of the firm.
The amendments which Clive Palmer has asked for when passing the FOFA wind back laws, will allow consumers to easily identify which Financial Advisers are independent of the major banks and AMP.
This means that you can be more confident with the advice given from these “Conflict Free Advisers”.
Clive Palmer wants “Client Best Interest Rules” to be tightened.
This is not an issue for any independent adviser. It is only an issue for those who give conflicting advice or the bank employee giving general advice.
Finally, only around 20% of the population actually get some sort of financial advice.
The other 80% never seek advice. Which means any change to FOFA has no impact on them. These people are in Industry Super funds paying fees for no advice and no service.
The benefits will be felt by the 20% who do look for advice and appreciate what this advice can help you achieve.
The extra cost for advice is small when you consider the benefits and results achieved.
For proof just compare the average balance of a Self Managed Super Fund to that of an Industry Fund.
More money means a better retirement.