Shades of grey: confusion surrounds opt in changes

One of the country’s largest financial planning and wealth management firms says it is “a legitimate question” to ask if financial planning businesses have wasted money and time preparing to comply with opt in, if that compliance requirement can now be easily eliminated.

Under an amendment to the Future of Financial Advice (FoFA) bills, the government proposes to allow the Australian Securities and Investments Commission (ASIC) to exempt licensees and authorised representatives from complying with opt in if they adhere to an approved code of professional conduct.

“The problem you’ve got, though, is – and I suppose it’s been alleviated to a degree with the extension of 12 months – that we’ve had to make moves,” says Paul Barrett, general manager of advice and distribution for ANZ Wealth.

“We thought things were coming on July 1. So we had to make decisions based on half information.

“Now we’ve got a year to think about it, so we’re going to be less bogged down thinking about where things are going to end up. So that’s a good thing. I am absolutely rapt that sanity has prevailed and we’ve now got 12 months to get our heads around some of these things, and time to put technology solutions in place.

“But you raise a legitimate question, and once we know what the professional code of conduct looks like – who is going to offer it, and how it’s going to apply – then we can start to make those sorts of calls.

“And if it’s a sensible approach that’s taken to what professionalism means, then I think it will be very, very tempting for most planners to go down that path.”

Barrett says the amendment to the FoFA bills raises many questions.

“There’s two issues to consider. Firstly, what is the detail?” he says.

“Does a professional code of conduct have an in-built opt-in in it anyway? Will that be a requirement?

“And what will ASIC’s interpretation be? That’s the second issue.

“If ASIC has a view that meeting a professional code of conduct should include some form of opt in, then what relief is there really? That’s the level of detail we need to see before we pass our final views on this.”

It is also not clear what kind of organisation can issue and enforce a code of professional conduct that might be approved by ASIC.

“I imagine a professional association would be required, and who can form a professional association, who meets those definitions today, is an interesting question,” Barrett says.

“To be honest, putting the issues of FPA versus AFA and all those obvious issues to one side for a minute, having a professional code of conduct in a profession is intuitively a good thing. I don’t think anyone can really knock the logic around having a professional code of conduct.

“What do you have to do as a practitioner to meet the code of conduct? That has to be worked through, and I imagine ASIC will have a very strong view on hat as well.

“We need to firstly acknowledge this could be a good thing, but until we get involved with the detail, that remains to be seen.”

Barrett says any professional body that sought to implement an ASIC-approved code of professional conduct would “have to have adequate resources, financial and non-financial, to be able to execute, implement, monitor [and] supervise a code of conduct”.

“Those are the sots of things that I would expect to see in [an ASIC] requirement,” he says.

Barrett says that opt in is the subject of close focus by ANZ and other major institutions.

“Right now, that’s our focus,” he says. “We’re looking at how do you physically implement this? And it’s not just a case of training advisers, it’s a case of giving them technology and processes.”

He says the potential cost of getting opt in wrong could be disastrous for large organisations.

“If you just do the back-of-the-envelope maths, let’s assume an example where you’ve got 100,000 new business transactions in a year, across all of your advisers in your networks,” he says.

“Let’s assume a failure rate of 5 per cent around opt in, not as a result of anything premeditated or bad, just through poor administration or the volume of work involved. Correct me if I’m wrong, but I think the penalty, or the proposed penalty, is $50,000 per adviser per indiscretion; 5 per cent of 100,000 is 5000; 5000 times $50,000 is a lot – it’s a big number. A licensee has a $200,000 obligation, I think.

“If you implemented that technically, you’d put licensees – big businesses – out of businesses. So this practical implementation issue is really important. We’re turning our attention to how we implement.

“We have to understand what this [proposed exemption] means in terms of our spend in this area – so there are a few more unknowns now. But we are getting down to the matters around the implementation of opt in because the stakes are really high if you get it wrong.”