Shorten’s legacy – FoFA and LIF
ANALYSIS
Mention the name Bill Shorten to financial advisers with more than 15 years’ time in the profession and they will think of the Future of Financial Advice (FoFA) and the Life Insurance Framework (LIF).
Shorten announced his upcoming retirement from politics yesterday to take up a position at the University of Canberra but he was once the Minister for Financial Services in the Rudd Labor Government and oversaw both the implementation of FoFA and the genesis of the LIF.
Thus, his impact on the evolving shape and texture of Australian financial planning sector has been profound and many in the advice sector would suggest it has, overall, been negative.
Shorten was the Minister for Financial Services and Superannuation from 14 September 2010 to 1 July, 2013.
What must be acknowledged is that both FoFA and LIF significantly altered the commercial underpinnings of the financial advice sector and, ultimately, turned what were once highly profitable dealer groups underpinned by volume bonuses and rebates into marginal operations.
So, what did FOFA do? According to an Australian Securities and Investments Commission (ASIC) summation of the Corporations Amendment (Future of Financial Advice) Act 2012 and Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 it introduced:
- A prospective ban on conflicted remuneration structures, including commissions and volume-based payments, in relation to the distribution of and advice about a range of retail investment products.
- A duty for financial advisers to act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and place the interests of their clients ahead of their own when providing personal advice to retail clients.
- An opt-in obligation that requires advice providers to renew their clients’ agreement to ongoing fees every two years.
- An annual fee disclosure statement requirement.
- Enhanced powers for ASIC.
Anyone who had worked in and around financial advice prior to the full implementation of the FoFA regime in 2013 will remember how profoundly it changed the sector and the commercial consequences which followed.
Where the Life Insurance Framework is concerned, Shorten was an instigator but internal Labor Party politics not least the overthrow of Kevin Rudd as Prime Minister and then the ALP’s post-Julia Gillard loss at the 2013 Federal Election meant that he had gone from relatively junior Financial Services minister to Federal Opposition leader.
Shorten had been prompted to pressure the major life insurers via the Financial Services Council (FSC) based on ASIC Report 413, Review of Retail Life Insurance Advice, that identified “a strong correlation between high upfront commissions and poor consumer outcomes”.
It found that 82% of the industry utilised upfront commission arrangements and the average commission is high (around 120% of the year one premium). It noted that for some insurers, more than 90% of their advice channels are paid under an upfront commission model.
Notwithstanding the ALP’s defeat in 2013 the LIF remained on foot as a policy issue and was given life by the Abbott Coalition Government in the form of the Corporations Amendment (Life Insurance Remuneration Arrangements) Regulation 2016 with the regime coming into effect in 2018.
Bill Shorten will be remembered by the financial services but not always fondly.
Glad you are gone Bill. Don’t come back.
Consumers are now paying dearly for the ignorance and incompetence of Bill Shorten.
Fees are through the roof and most adviser books are full, leaving retireees vulnerable to scammers. This includes his own electorate where I practice.
I wrote to him a number of times and tried to book a meeting. All I got was dismissive, templated spin.
If he had bothered climbing out of his ivory tower in Moonee Ponds, he might have avoided the stupid own goal, losing swathes of votes from rusted on Labor supporters, due to the poorly conceived franking credit, negative gearing and CGT policies.
Bill may have softened they way he will be remembered by his work with the NDIS (still a costly fail) but for those close to the action during his time as Finance Minister he will be remembered for his unwavering approach to dealing with the industry which was “What is in this for me?” FOFA and LIF had nothing to do with making the industry better and were all about his position to run for the top job which he failed to achieve as did the legislation.
ASIC report 413 is not true. Just ask the financial planner they permanently banned based on insurance churning. ASIC relied on manipulated/incomplete evidence provided to them. All they had to do was to investigate it properly to see that the new insurance product had more features & benefit & significantly lower premiums (Existing product had increased by minimum 15%). ASIC report 413 should be abolished.
That is a touch too generous for ASIC, I think they actively sought out the manipulated and incomplete evidence rather it being provided to them.
BS= Bill Shorten
Key objective was to kill Advise businesses and the distribution channel, and have the industry funds control as much money as possible.
Home | GetUp! is just money laundering to the Labour Party. Dodgy BS set this up to!
After his time at Uni in Canberra, dodgy BS will end up on the board of an Industry super fund or two milky hefty wage and benefits.
ASIC Report 413 was issued in October 2014, more than a year after the Abbott Coalition Government came to power, long after the time Shorten was the Minister, however the FoFA reforms did remove commissions on insurance for default superannuation arrangements and it was the trigger to start the process that ended up with the LIF.