The Parliamentary Joint Committee on Corporations and Financial Services (PJC) clears one key hurdle on the path to reform of the financial planning industry.
The PJC has recommended no material changes to the structure or implementation of the Future of Financial Advice (FoFA) legislation. However, several steps remain before financial planning practitioners and licensees have clarity on exactly how the new laws and regulations will look, and for the time being, the start date for the new regime remains July 1.
The committee has not recommended the start be delayed, saying it had received “mixed evidence on the merit of this starting date”. Nor has it recommended extended transitional arrangements.
However, the door remains open for the Minister for Financial Services and Superannuation, Bill Shorten, to revise the implementation timetable to allow financial planning practices an orderly transition to the new regime, which is slated to come into effect in just four months’ time.
The Minister has stated a willingness to do so, provided that any delay is only to accommodate practical issues with transition. He has said the government will not be swayed by attempts to delay or overturn the reforms on ideological grounds.
Recommendations and dissent
The PJC recommends specific regulatory guidance that should be provided by the Australian Securities and Investments Commission (ASIC); clarifies a number of issues related to soft-dollar benefits and what constitutes legitimate professional education and training; calls for continuation of ASIC’s “shadow shopping” program; and recommends a review of how effectively FoFA has been implemented (and how well industry is complying) at the end of 2013 and 2014.
On the issue of opt in, it recommends nothing beyond minimum disclosure guidelines being included in the regulations of the Corporations Amendment (Future of Financial Advice) Bill 2011.
The PJC paper contains a dissenting report by Coalition members of the committee. To read a copy of the dissenting report, CLICK HERE.
Not the time for complacency
The Financial Services Council (FSC) says it is disappointed by the PJC’s apparent “unwillingness to accept industry concerns and make pragmatic changes to improve the legislation”.
In a statement, FSC chief executive officer John Brogden said the financial services industry would “increase its efforts to convince the Government of the need to make the legislation workable so that it delivered on the Government’s own objectives of increasing trust and confidence in financial advice, improving accessibility and reducing conflicts of interest”.
It said the legislation, if it reflected the PJC’s recommendations, would “increase the cost of advice, reduce its accessibility for the people who need it most and see advisers leave the industry”.
The Financial Planning Association of Australia (FPA) has also expressed similar reservations. FPA chief executive officer Mark Rantall says the original aim of the FoFA legislation was to “improve transparency of, and access to, financial advice for all Australians”.
Rantall said in a statement that the “majority of the suggestions the FPA made throughout the inquiry, and indeed recommendations made by other representatives of the financial planning industry, have not been adopted”.
Additionally, the Association of Financial Advisers (AFA) says that while the aim of FoFA was laudable, the execution is poor.
The chief executive officer of the AFA, Richard Klipin, said in a statement that many aspects of the FoFA legislation as it stands run counter to its original aims and objectives, and the PJC report does nothing to help that.
Klipin has called on the financial services industry to continue to lobby for changes.
“The AFA remains committed to getting the best outcomes for consumers and the advisers who serve them, and will therefore continue to strongly lobby the independents and cross-benchers. In the interests of consumers, we urge all members of the financial services industry to do the same,” he said.
“Now is not the time for complacency.”
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The PJC clears hurdles
Recommendation 1 Subsection 962F(3) of the Corporations Amendment (Future of Financial Advice) Bill 2011 (FoFA) should be reviewed with a view to providing access to recourse for consumers who have had fees wrongfully deducted.Recommendation 2 “Minimum disclosure” guidelines should be included in the regulations of the FoFA for fee disclosure and opt-in notices, stipulating a standard for communication between financial advisers and their retail clients. Recommendation 3 The explanatory memorandum (EM) that FoFA be amended to better explain the annual fee-disclosure obligations for existing retail clients. Recommendation 4 A revised EM that the FoFA be issued such that the final sentence in paragraph 1.33 of the EM reads: “In identifying the advice that has in effect been sought by the client (including advice implicitly sought by the client), the provider must take into account the client’s relevant circumstances.” Recommendation 5 Regulations pertaining to paragraph 964A(3) of FoFA be drafted to include a materiality threshold to determine when a benefit is not presumed to be a volume-based shelf-space fee. The regulations should specify that full disclosure is required for the payment and receipt of these benefits. Recommendation 6 ASIC should issue guidance material for platform operators who seek to substantiate a claim that a volume-based payment demonstrates a reasonable fee for service or a genuine value of scale efficiencies. Recommendation 7 ASIC should conduct shadow-shopping exercises on advice pertaining to life risk insurance outside superannuation post-implementation of FoFA. ASIC should report its findings back to this committee within two years of the date the Bill commences. Recommendation 8 Post-implementation, Treasury should work with ASIC to monitor closely the quality of advice on the sale of risk insurance inside and outside superannuation and any market distortions that may occur. Recommendation 9 Further material be provided in the EM to FoFA to outline examples of legitimate training, such as practice management or client relationship skills. Legitimate forms of training should also be provided in the regulations. Recommendation 10 The EM for FoFA should be amended to provide clarity on the application of the $300 limit for soft-dollar benefits. Further, the committee recommends that examples of what is and is not deemed to be “frequent or regular” should be stated in the EM and the regulations. Recommendation 11 Proposed consultations on the regulations for FoFA should include consideration of the potential impact of restricting soft-dollar benefits of professional development to within Australia and New Zealand. No geographical restriction be placed on professional development where it is professional development focussed on education and training. Recommendation 12 ASIC to provide regulatory guidance material on how Australian Authorised Deposit-taking Institutions (ADIs) can prove that remuneration does not “reasonably influence” advice. Recommendation 13 FoFA be amended so that the Timeshare industry is precluded from the bans on conflicted remuneration. Recommendation 14 The government should amend the footnote references to Rice Warner estimates in the regulation impact statements of the EM to both bills. The new footnote should be updated to reflect Rice Warner’s revised estimate of the employment impact of the FoFA reforms. Recommendation 15 There should be an independent review of the application of the FoFA legislation. The review should be timed to comment constructively on how stakeholders have complied with, and interpreted the FoFA provisions. To this end, the committee recommends that an initial report should be given to Government by the end of 2013 and a further report by the end of 2014. Source: PJC |
