When the Future of Financial Advice (FoFA) regime kicks off on July 1, the buzzword for all financial planners, dealer groups and licensees should be “alignment”.
And Australian Securities and Investments Commission (ASIC) Commissioner Peter Kell says planners should view the development of codes of practice as a way to enhance that objective, rather than as a way to avoid legal obligations under FoFA.
Kell says ASIC’s immediate focus in the FoFA era will be on whether planners’ business models align with the best interests of clients. Kell says it is “a bit simplistic” to sum up the regulators focus in one word – alignment – but “that’s the best way of doing it”.
“Typically where we have found problems in the past, it’s where there hasn’t been alignment between the adviser and the interests of the client,” he says.
“FoFA provides a number of structural changes to help facilitate that alignment; what we hope to see is that the industry takes the opportunity to build on that and run with the idea itself.”
Industry codes provide an opportunity for sections of the industry to build on and exceed the FoFA foundations, Kell (right) says, and to set out clearly how planners can effectively engage with clients and ensure true alignment of interests.
While a code approved by ASIC can obviate the need for its adherents to comply with the legislative opt-in requirements, Kell says ASIC will be very particular about the codes that it approves.
“The message we’ve been sending here – and we’re pleased to see industry groups agree with this – is people should not be thinking about these codes in a purely negative way,” he says.
“If someone is thinking about joining a code purely to avoid the legislative opt-in provision then they’re doing it not only for the wrong reasons, but they are also likely to face a nasty surprise when they realise what codes actually require.”
Kell says the aim of the opt-in requirement is really about improving client engagement and in aligning the interests of adviser and client.
“That’s what these codes will need to focus on – how do you engage with your client upfront, how do you work out what you’re going to provide over time, how do you renew the relationship as the years pass?” he says.
“In other words, it’s really what a good adviser does as a matter of course –demonstrating how they provide a great service over time. That’s what codes will deliver, and they are a great opportunity for the industry to present a really positive picture of what they offer the consumer over time.
“Forget about avoiding this or that; codes will work well when they are positive statements about how an adviser is going to deliver a great outcome over time for their client.”
