Advisers aside, FoFA can't stop dud investments Most Australians could do with some sound financial advice. FoFA: That four-letter F word was thrown around a lot in Canberra last week, often with a great deal of heat and energy. But like the other F word, it mostly doesn't mean what it literally means. If FoFA really is the Future of Financial Advice, financial advice doesn't have much of a future. Undoing the Coalition's undoing of the previous government's reforms doesn't automatically clean up the financial advice industry and restore public faith in financial planners. Indeed, the FoFA changes saga, culminating in the Cirque de Senate blowing up Arthur Sinodinos' reforms in Mathias Cormann's face, arguably perpetuated some of the harm being done to financial planning. But the longer the FoFA fight has gone on, the less Australians might feel inclined to seek that advice as the trade's reputation gets dragged through the mud thanks to the appalling behaviour of a minority of practitioners. The financial planning industry doesn't like some aspects of the Labor FoFA rules, such as having to ask clients if they want to keep paying. The regulations were supposed to encourage people to pay though, by restoring faith in planner's integrity. In fairness, yes, there were scumbag salesmen operating within the Commonwealth Bank and the bank was promoting them - but the whistle was blown on them by CBA financial planners. Yes, there were commission merchants tipping clients into bad products, but there were other financial advisers keeping other people out bad products. Yet the way the FoFA war has unfolded, all have been tarred with a broad "not to be trusted" brush. Waving a stick over the financial advice industry won't restore or impose trust. For that, financial planning has to be professionalised and the overwhelming vertical integration broken. As Adele Ferguson reports, the industry can identify the problems, but is incapable of agreeing on how to solve them. I'd suggest that's because so much of it is hopelessly conflicted. The interim Murray Financial System Inquiry report named vertical integration - the banks and AMP effectively owning the products, the platforms and the planners - as an issue. A test of that inquiry's integrity will be whether it will be game to recommend something be done about it. A part of the problem that neither FoFA nor Murray addresses is the role of financial product manufacturers. The ASIC stamp does not mean the product has been vetted and as it turns out you can produce just about any bit of financial rubbish with minimal responsibility, unlike the manufacturers of other goods. If your car is seriously faulty and blows up, the manufacturer and not just the person who sold it to you has responsibilities. That's not the way it works with financial products. As Ms Ferguson also has reported, there are plenty of dud products manufactured by big names that have escaped censure or pain for failure. The Association of Independently Owned Financial Planners - those who have escaped vertical integration - would like that changed. And they also want to change the current highly questionable system of product manufacturers paying for research ratings. There are unkind souls who have ventured the opinion that product manufacturers buy their research ratings. Timbercorp and Great Southern are disasters that still managed to get research rating ticks. AIOFP president Peter Johnston suggests a solution would be for every adviser to pay a $1,000 annual 'research fee' which would fund a panel of independent research houses to rate all new products. Financial advisers remain reliant on research houses. It's impossible for the individual planner to be across the myriad financial products being churned out. Yet as long as research reports are prey to "tweaking" or simply buried if they're unfavourable, there will be doubts about their value. Ultimately though, there also has to be an acceptance of responsibility by investors, a willingness to acknowledge that an attractive return also means a risk of no return at all. In particular, the gearing of any investment increases both risk. There is some irony in the claim that it was Timbercorp victims' stories that changed the Senate vote, especially those trying to get to the ANZ bank's deep pockets to ease their pain. I hold no brief at all for Timbercorp and its big commission-paying agricultural MIS peers. Indeed, I was part of the Business Sunday team long ago that took on the MIS spruikers before it was popular. But to revert to the car analogy, if you borrow money to buy the lemon, it's hardly reasonable to think you should be excused repaying the loan if the car dies. Perhaps those advised to stop repaying their Timbercorp loans and consequently now in deeper financial trouble might ask what guarantees came with that aforementioned advice. Michael Pascoe is a BusinessDay was a guest speaker at the AIOFP annual conference