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Stand up for your rights

The Motley Fool has a long and proud history of fighting for the interests of the individual investor.

Our US parent company was instrumental in a couple of big wins for investors — namely convincing companies to open their conference calls up to anyone who wanted to listen (rather than just analysts from brokers and managed funds) and the passing of the United States’ version of continuous disclosure, called Reg FD (for ‘fair disclosure’).

You bet! Not just because the likes of former SEC chairman Arthur Levitt wrote nice things about us, but because we truly did help level the playing field for individual investors.

Please help us help you

We’ve been vocal supporters of the Future of Financial Advice (FoFA) regulations. It won’t be news to most of you that the federal government has been looking to water down those regulations.

Pleasingly, they’re keeping most of the important ones, but the mooted changes have one important attribute: in our view, they serve to weaken investor protections and to lower the bar for those of us in the financial services industry.

If not your best interest, then whose?

The government has decided to remove the catch-all ‘best interests’ test for financial advisors, removing a clause in the legislation that requires an advisor to act in the best interests of his or her clients in all cases. There is a prescriptive list of six things an advisor must do, but removing the ‘catch-all’ clause means that there’s no over-riding duty to act in your best interest outside those six bullet points.

You have to wonder why… after all, if an advisor isn’t acting in the client’s best interest, shouldn’t they be made to? And if they already are, then what do they have to fear from a catch-all ‘best interests’ test?

The changes to the legislation would also allow bank staff to be incentivised to sell you financial products. Why would they need to be incentivised, if they’re genuinely helping you to find the best product for you? Oh….

Lining up at the barricades

You can tell a lot about a particular issue, if you have a look at which people or organisations are lining up on each side of an argument.

Vocal opponents to the government’s plans include the consumer advocacy organisation, Choice, non-profit industry superannuation funds and us here at The Motley Fool.

Choice has nothing to gain and no conflict of interest. Neither do industry super funds.

We at The Motley Fool would probably be better off if FoFA was repealed entirely. As a completely member-focussed organisation, the more murky the financial world, the better we look to investors who are seeking independent, trustworthy financial advice! But we’re not in the business of callous self-interest. We’re in the business of helping Australians invest better. So while we could just stay quiet and then loudly trumpet our independence in the face of a watered-down FoFA, we’ve decided not to. If these changes are made, it won’t be because we pulled our punches.

On the other side of the barricades?

The Australian Bankers’ Association and the Association of Financial Advisers. The Financial Planning Association of Australia agree with us on incentives, but disagree on the catch-all ‘best interests’ test.

Time to take action

FoFA could be easily dismissed as just another acronym, and something that doesn’t affect you.

But ask yourself: next time you speak to someone about financial services — a bank employee or financial planner, for example — don’t you want to receive honest, unconflicted advice that’s unarguably in your best interest, without having to check whether your situation falls within the six prescriptive steps in the legislation?

And even if you think “I’m savvy enough to see through any spin”, what about your mother, father, sister, son or daughter? Don’t you want them to be protected by strong, consumer-friendly financial advice rules?

We’ve made representations to Ministers Sinodinos and Cormann, and put our case strongly. We’ve written about this issue in these pages – as have myriad other commentators.

What can you do?

Over the past couple of years, we’ve heard a lot from investors who’ve been underwhelmed with questionable financial advice.

If you believe that an advisor should act in your best interest without you having to worry about whether your situation is covered by specific clauses in legislation, and if you think bank staff should provide conflict-free product advice, then we need you to help.

Of course, we at The Motley Fool hope we’re an antidote to poor and potentially conflicted advice. We also know that the majority of financial planners are competent, trustworthy people. They have nothing to fear from the removal of commissions and the imposition of a catch-all ‘best interests’ test.

We don’t think the FoFA rules should be watered down. The changes can’t help but reduce consumer protections, and financial services isn’t an industry where consumers should have to second guess the advice they receive.

Foolish takeaway

If you agree, please take some time to add your voice to Choice's petition, here. Of course, the other thing all investors should do is remember that no-one cares more about your financial future than you. Make sure you understand the advice you receive, and don't stop asking questions until you're satisfied that you understand the answers and agree with what's being proposed. Take your time, and find a planner you trust, and who you feel will act in your best interest - regardless of the legislation.

And remember, always: if it looks too good to be true - even if the dollar signs light up in your eyes - it probably is.

Attention: Foolish, dividend loving investors who are looking for Australian investing ideas can click here to request a Motley Fool free report entitled Secure Your Future with 3 Rock-Solid Dividend Stocks.

Scott Phillips is a Motley Fool investment advisor. You can follow Scott on Twitter @TMFGilla. The Motley Fool's purpose is to educate, amuse and enrich investors. This article contains general investment advice only (under AFSL 400691).

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