Australia’s financial planners will have a one-year grace period to comply with Future of Financial Advice (FoFA) reforms after Government conceded that the industry would need time to prepare.
Announcing what it called “more flexible commencement arrangements”, a statement from Minister of Financial Services and Superannuation Bill Shorten’s office said all FoFA reforms will commence from July 1, 2012 as originally announced, but the application of the provisions will be voluntary until July 1, 2013.
This means that mandatory application will start from July 1, 2013 but any business that wants to start complying with the reforms from July 1, 2012 will have the opportunity to do so.
From July 1, 2013 the entire industry will be required to comply.
“The Government has listened to concerns from the business and financial planning community that they need more time to prepare for these changes,” said Minister Shorten in a statement.
“This timetable also balances consumer needs, as it gives early industry movers the opportunity to provide commission-free products from July 1, 2012.
“The revised implementation arrangements will lower industry implementation costs as they will be able to synchronise FoFA and Stronger Super reforms.”
The decision, which was widely expected by industry associations, drew praise from the Financial Planning Association (FPA), Association of Financial Advisers (AFA) and the Financial Services Council (FSC).
Each had considered a July 2012 commencement with no transition period unworkable, especially as regulator guidance from ASIC can only be made available once the legislation has been passed.
The Corporations Amendment (Future of Financial Advice) Bill was expected to be debated by the House of Representatives this week but the package of reforms fell victim to a heavy parliamentary schedule and may only see the light of day on Monday, March 19.
The FPA called the announcement “a great outcome for common sense”.
“We believe a one-year transition will allow all financial planners the time needed to implement these reforms in a transparent and efficient way for the benefit of all Australians.
“The FoFA reforms are integral to the financial future of all Australians, therefore we want to ensure that discussions around and the implementation of the reforms are not rushed, potentially resulting in unintended consequences,” said CEO Mark Rantall.
“The FPA looks forward to hearing the government’s response to other recommendations made by the FPA, and many other industry representatives, throughout the inquiry.”
The Association of Financial Advisers (AFA) described the delay as a “good start”.
“It is good to see that the collective efforts of the AFA and the financial services industry have seen common sense prevail,” said AFA chief executive Richard Klipin.
“We trust this spirit of compromise, which is so necessary for the implementation of good policy, will continue.”
John Brogden, CEO of the FSC, said a 12-month transition to FoFA recognised the significant investment and training required by the industry to implement the extensive reforms.
“FoFA will drive significant structural changes across the industry, costing $700 million upfront to implement and $375 million each year in ongoing costs,” he said.
“A 12-month transition period will allow businesses to make the necessary changes to IT systems, compliance processes, training and disclosure requirements.”
Group executive of NAB Wealth, Steve Tucker also welcomed the news.
“The Government’s decision to provide a 12-month transition period for the introduction of FoFA is a sensible and pragmatic outcome,” he said.
“We are supportive of the vision for FoFA to build trust and confidence in financial advice, but we need to minimise disruption to advisers’ businesses and the services they provide to their clients during implementation.”
AMP said it was clear that the minister had taken into account the views of the wealth management sector and “allowed adequate time for the sector to implement the significant program of change required to comply with FoFA”.
BT Financial Group chief executive Brad Cooper said the flexibility in implementation would result in the best outcome as it could now coincide with the industry’s implementation of the Stonger Super reforms.
“Allowing the industry to implement Stronger Super and FoFA as a package, rather than in isolation to each other, means we can provide a more seamless experience to the customer and drive better engagement,” he said.
“When you combine all the individual pieces of reform they are truly transformational and we, the industry, have one chance to get it right.”
Director of campaigns and communications for consumer group CHOICE, Christopher Zinn, said the best planning practices were already compliant and was not opposed to a “phasing in” period.
