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Senate inquiry gives qualified support for FoFA changes -

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SIMON SANTOW: A Senate inquiry has delivered a qualified endorsement of the Government's planned changes to rules governing financial advisors.

The Government wants to wind back elements of the former Labor government's Future of Financial Advice Reforms, which were introduced after the collapse of several big advisors during the global financial crisis.

The inquiry has recommended that the changes go ahead but it's also asked for some adjustments to the legislation to ensure better protection for consumers.

Here's our business reporter Pat McGrath.

PAT MCGRATH: The debate around changes to the Future of Financial Advice, or FOFA, reforms has been extremely heated and for many onlookers extremely complicated.

But Brad Fox, from the Association of Financial Planners, says the Senate inquiry's report is a step towards certainty for his group's members.

BRAD FOX: They've been operating in an uncertain world now, for more than four years.

PAT MCGRATH: That's because four years ago the then-Labor government announced a raft of changes aimed at ensuring financial advisors remained independent from the big banks and that their advice wasn't influenced by their own financial interests.

That involved banning commissions for advisors who sell financial products to the clients and enshrining a so-called "catch all" provision that requires all advisors to act in their clients best interests.

PAT MCGRATH: In December, the then assistant treasurer Arthur Sinodinos announced plans to allow advisors to earn commissions on general financial advice but not on personal advice.

And he announced the best-interest duty would be lifted because similar provision already exist in the law.

But legislation for those changes were put on hold shortly after Arthur Sinodinos stood as aside as assistant treasurer in March.

At the time, the Finance Minister Mathias Cormann said the amendments required more consultation with the industry, regulators and consumer groups.

Brad Fox was among those who made submissions to the Senate inquiry.

BRAD FOX: The majority of people receiving financial advice are receiving it through a small business, and that small business operates in a local community, a local country town, a regional town.

They may operate under authorisation from a bank that provides compliance and oversight but they are small business owners. They need to have great relationships with their clients and they need to provide great advice.

That will be the case after these amendments are in place. It's been the case in the past.

PAT MCGRATH: The majority view from Coalition senators involved in the inquiry has recommended some adjustments to the FoFa roll back.

They say the explanatory memorandum that accompanies the legislation needs to make clear the pre- FoFa rules established the best interest duty.

And the report says the Government needs to redraft the conflicted remuneration rules to give greater clarity about when commissions are paid.

Brad Fox says that's in line with the view of government and industry.

BRAD FOX: The opinions that are held in the report have been pretty consistent for more than two years now, and on that basis, we are supportive of what's been recommended by the Senate Legislative Economic Committee.

PAT MCGRATH: But your members are obviously celebrating the fact that they will soon again be able to earn commissions on general advice given to their clients.

BRAD FOX: I'm glad you've raised general advice and commissions. Financial advisors will not in any way be able to receive commissions for providing general advice.

What we've all worked very hard on with the Government is to make sure what goes in the final bill that's submitted for Parliament to consider, ensures that financial advisors that give personal financial advice, so those people you'd normally call a financial advisor, cannot, in any way receive commissions for providing general advice.

PAT MCGRATH: Industry Super Australia has opposed the rollback all along.

Its chief executive David Whiteley has a different interpretation on the rules governing commissions.

DAVID WHITELEY: A number of conflicted, or areas of conflicted remuneration, will be resubmitted.

This might include volume rebate, which is just wholesale commission, ongoing asset-based fees for advice, that's just another form of commission by another name. There is bonuses and balance scorecards, all of which are incentives to financial planners or bank employees to sell the bank's products.

What we have at the moment is an iron-clad ban on conflicted remuneration. Our view is that these changes will create loopholes and caveats to that iron-clad ban.

PAT MCGRATH: Mathias Cormann was unavailable for his comment today but his office says the Finance Minister will announce his response to the report and the next stop forward for the FoFa changes shortly.

SIMON SANTOW: Business reporter Pat McGrath.