The Australian Securities and Investments Commission (ASIC) remains on track to produce final guidance on two key aspects of the Future of Financial Advice (FoFA) changes by the end of the year, with final guidance on other issues to follow early next year, according to its commissioner, Peter Kell.

On Monday Kell told the AFA National Conference on the Gold Coast that ASIC will release final guidance on the best interests test and scaled advice by December. Guidance on conflicted remuneration will be released in February.

Kell says ASIC has issued four key consultation papers and has received considerable feedback from the industry, which he says will inform its final guidance.

“In addition to these consultation papers, we are now planning to issue an information paper on fee-disclosure statements on our FoFA web page fairly shortly,” Kell said.

The Commission also plans to release a consultation paper on RG146, covering minimum competency and training requirements, having already signalled that basic requirements need to be substantially upgraded.

Tell me about it

Kell (right) said ASIC welcomes feedback on all of its consultation papers, but it is on the issue of industry codes that it is most keen to hear what the industry thinks.

“There are three key issues,” Kell said. “The first is what would be the content of a code that does obviate the need for opt in.

“We expect approved FoFA codes to contain provisions that will achieve substantially the same sort of outcomes that the opt-in requirement itself is intended to achieve. That is, engaged clients, who are receiving valued services for the ongoing fees they pay.

“This is an area where we genuinely are seeking some further feedback from the industry in considerably more detail than perhaps some of the other papers. This is really something where ASIC needs to hear from you, as to what sort of services and what sort of requirements should be in place.

“We’ve also consulted around the form of an approved code. Generally, codes are conceived of as industry-wide and covering a broad range of issues. We’ve asked whether codes could be content-limited. That means, a code that only contains requirements that obviate the need to opt in. Does it have to be broader? We’ve noted some challenges around that, but we want to get some feedback on that.

“And, we want to get feedback on entity-specific codes. That is, could a code be linked to a single provider, or a small number of providers? How big does it have to be in terms of coverage before it should be approved?

“Our consultation paper talks about the potential advantages and disadvantages of these approaches, but they have been raised with us and we thought it was important to receive feedback from the industry.”

Subscriber list

Kell also said that a related issue is a register of individuals who subscribe to particular codes.

“Given the way codes are going to work, it’s very important that those who actually provide the codes – the operators of the code, if you like, the code owners – must maintain a publicly searchable and up-to-date member register,” he said.

“This is because we think there could be many more advisers subscribing to industry codes. It’s going to help those in the industry. It’s going to help licensees and it’s going to help consumers if we have that sort of requirement in place.”

According to Kell, particular issues raised by industry on the issue of best interests include “our approach to looking at how the best interests test is being provided and in particular if the client is in some sense better off”.

“It’s important to understand here that there are a number of qualifications around this proposition,” he said.

“There is no hindsight re-examination of the advice; and it’s also, not in some very narrow sense, a test of a better financial position. In many cases, good advice will put the consumer in a better position because they will have a much better understanding of their financial situation and what they have to do to improve it over time.

“There are also some questions about when an adviser might look beyond an approved-products list (APL), and there are two specific circumstances raised there. One was a fairly obvious one, in one sense: if a client’s existing products are not on the APL, that’s one instance where people will have to look more broadly. Secondly, if the APL is restricted to one class of product and there are products that are not in that class that would better meet the client’s needs and objectives, there might need to be a broader look.

“So we’ll provide some further information on that.”

Economies of scale

Kell said that scaled advice “also has to meet the best interests test, so much of our consultation has been on explaining the interaction between best interests test and scaled advice”.

Feedback from the industry “relates to technical issues, rather than any show-stoppers, so that’s been very useful engagement”.

And he said that the key message the industry should take from its guidance on conflicted remuneration is that “we will look at the substance of the benefit over its form and how it has been described or labelled”.

“When looking to show that a benefit is not a volume-based shelf-space fee, if the fee-for-service exclusion has been relied upon there must be correlation between the fee and the platform operator’s costs in providing the service. Or, if the scale-efficiencies exclusion is being relied upon, we expect the platform operators will receive and keep a written, up-to-date and appropriately verified analysis from the funds manager about its costs, and how the value of the rebate or the discount is referable to the economies of scale,” he said.

Join the discussion