Mathias  Cormann has hit back hit back at the Senate’s blocking of his attempt to disolve the Future of Financial Advice laws by seeking their demise through ASIC.

He has called the block by Senate a ‘temporary setback’ and says the FoFA laws are in a ‘transitional period to 1 July 2015.’

This is bad news for businesses, which have no idea of the future of the business system beyond that point, and bad news for consumers who are already dealing with an ethically compromised system about to be let of the leash entirely.

Since the introduction of FoFa some elements of the financial planning profession have made some kind of effort to move away from commission-based and bonus-linked sales. These ‘incentive’ based remunerative packages were replaced by compensation based payments for the work they did.

And while everyone agreed FoFA was far from ideal it did introduce guidelines on ways to align advice and products with the client’s wealth goals and risk profile.

These elements were at the heart of Cormann’s wind-back proposal. Once gone, anyone touting any financial adviser would be able to explain a product’s features but be unable to offer advice on whether it suits the client or not.

Cormann also wished to allow financial planners giving ‘personal advice’ (product recommendations ostensibly meeting the client’s lifetime income needs) to be able to recive sales bonuses and kick-backs from the product owners based on the number of products they sold.

This places financial planners in an ethically compromised position: Do they do what is best for the client or what is best for themselves? As the history of the Australian financial planning industry shows, they will likely choose the latter.

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