FoFA: Inside the
sausage machine

There are only two things that you don’t ever want to see being made, says Matthew Rowe, chairman of the Financial Planning Association of Australia (FPA). One is sausages; the other is laws. And after a pivotal week in the development of financial planning as a profession in Australia, Rowe knows what he’s talking about. Just on two weeks ago, as the Government sought safe passage of its Future of Financial Advice (FoFA) reforms through the lower house the FPA found itself in the middle of the debate on the thorny issue of opt in.

On one hand, the Government was committed to introducing opt in; on the other hand, it needed the support of independent members of parliament to get the legislation through, and the independents had voiced considerable disquiet about the opt-in proposal.

Furthermore, the term “financial planner” would be enshrined in legislation – effectively closing the loop on a process that may eventually lead to the FPA’s cherished goal of professional recognition and of self-regulation.Rowe says the FPA was, is and always will be opposed to opt in, both in concept and in practice. The idea of the blunt instrument of legislation impinging on the relationship between a financial planning professional and client is abhorrent to it. He says the FPA believes the results that opt in seeks to produce are more than adequately achieved through the association’s code of professional practice.

When the stakeholders and Government came calling, the FPA recognised an opportunity, and through a series of negotiations and discussions – with the Government and independents – achieved what can only be described as a stunning concession: any financial planner who agrees to be governed by an ASIC-approved code of professional practice would be exempted from the opt-in provisions.

Big steps towards professionalism
It is sometimes easy to forget that it’s only 12 months since about 94 per cent of FPA members voted in favour of a restructuring that abolished principal membership and turned the association into a genuinely practitioner-focused organisation, one that would represent financial planners as individuals.

Earlier, the FPA had put in place a policy on conflicted remuneration, which was largely mirrored by provisions contained first in the Parliamentary Joint Committee (PJC) on Corporations and Financial Services’ inquiry into financial products and services and, subsequently, in drafts of what would become the two FoFA bills.

And now subject to code approval, the association has effectively eliminated opt in for its members, and opened the door to something that it had been seeking unsuccessfully for years: enshrining the term ‘financial planner’ in legislation.

In the space of a week, financial planning had taken two of the biggest steps towards professionalism in its relatively short history.

“When the board was approached about the opt-in provisions, and looking to negotiate an outcome around opt in, we considered very carefully what it was that we were looking for,” Rowe says.

“We are absolutely opposed to opt in; but if we could negotiate an outcome for our members, where if they’re a member of the FPA and we have an approved code of professional practice and you get class-order relief, and [opt in] doesn’t apply, then that’s a pretty good outcome.

“We were at the pointy end, and who knew what the numbers really looked like?” As it turned out the Government easily had the numbers: 64–59.

Rowe thinks the process might have been confusing to some on the outside, and a number of observers apparently gained a false impression of what was actually going on. At no stage, for example, were there ever ‘deals’ struck . There were positions negotiated and we didn’t get everything we wanted.

“What I understand is there’s a document floating around” Rowe says.

“There have been hundreds of working documents with different bodies, working through different positions. The only groups able to consummate a deal are the Government and independents.

“That is not to say that we hadn’t had discussions with the ISN or other stakeholders; the FPA and ISN and a multitude of other representative bodies have been talking to each other for months, if not years, about virtually every aspect of the FoFA package.”

The FPA was asked to forward its position and put its case. Any subsequent deals were struck between the Government and the independents to ensure passage of the bills.

“When you are being approached by the government of the day around legislation that is going to have a significant effect upon your profession and your members, you will look to make the tough decisions when you think you have right on your side,” Rowe says.

Negotiation focus
“Our focus was always on what was most important for us: recognition of our profession and of what was good for our members.

“We had always held the view that the heart of FoFA was removing conflicted remuneration and having a ‘best interests duty’ towards clients. Having opt-in and additional disclosure added, in our opinion, very little to consumer protection. We didn’t get all the amendments through for best interests or additional disclosure, but we did get some concessions.

“We are waiting for explanatory memoranda to see how the legislation deals with these two important issues. Because there’s still some work to be done around best interests, it should be your default position to be acting in your clients’ best interests. That has always been our position.”

The FPA is satisfied with the result it’s achieved with FoFA. Rowe says it would prefer that opt in were abolished altogether, but abolishing it for FPA members, and members of other associations that deliver an approved code, is a compromise it can work with.

It’s part of how sausages are made.

“Do you sometimes have to look at situations pragmatically and work through them and take the emotion out of them? Absolutely,” Rowe says.

And I think people need to take the emotion out of this and look at it pragmatically. The Government had the numbers.

“I think we now have an opportunity to rise above the noise, unite as an industry and galvanise behind the emergence of financial planning as a respected profession – let’s do that for the sake of all Australians.”