Financial services chief executives are concerned about the level of public trust in financial advisers, stating the Future of Financial Advice (FOFA) reforms have contributed to its erosion.
“The 2014 CEO survey”, published yesterday by the Financial Services Council (FSC) and technology firm DST, found some chief executives were concerned that during the early stages of FOFA the reforms undermined trust through their focus on the best interest test.
“The debate around the better interest test has been particularly damaging as many clients would have assumed that their advisers were already compelled to act in their best interest,” the report said.
FSC chief executive John Brogden said he hoped the recent Senate vote that paved the way for the revised regulations to come into force would be a starting point for trust to be rebuilt.
“There is no surprise that in the advice sector the issue of trust has come forward. It has been consistently an issue, but the industry, without a doubt, has taken a hit with respect to trust,” Brogden said.
“But now with FOFA being settled we have a hope that we can begin to rebuild trust.
“I’m also very hopeful that the issue that the government has put forward regarding education registers will enhance that.
“The real test of whether FOFA has worked will be in 12 to 24 months as to whether more Australians will be getting advice.”
He said the advice sector was also dealt a significant blow with the revelations of malpractice at Commonwealth Financial Planning and the Senate inquiry into ASIC.
“It is the worst thing that has happened since [the collapse of] Storm Financial,” he said.
“I do think we are back to square one in terms of trust in advisers.
“It is important to note it did happen before the new FOFA rules came in, but we do need to move on the education issues.
“Nobody disagrees that education standards [for financial planners] are too low.”
Asked if the FOFA legislation would protect clients from rogue advisers, he said it did provide a much greater level of protection.
“It is worlds apart from where it used to be,” he said.
“The very fact that you only had to give appropriate advice, a couple of lines on what you did, versus chapters on what best interest duty means is significant.
“But the biggest challenge for an industry is building culture.
“Legislation sets minimum standards, education standards set on top of that a minimal requirement, but the only way you establish genuine trust is when the culture is right.”