Financial planners should find out this week if they will need to comply with the Tax Agent Services Act (TASA) regime by July 1. Craig Meldrum cuts through the confusion.
As a vocal advocate of professionalism and higher education standards in financial planning and as a registered tax agent, I absolutely agree with the spirit of TASA and its application to financial advice. And while I applaud the decision to excise the elements of the bill pertaining to financial advisers, it is purely from a desire to see these important and critical reforms legislated and implemented properly in the best interest of the consumers it has been promoted to protect.
There has been an incredible amount of rigorous and sustained debate around this reform, but I have not really heard anyone saying they don’t want it. What I have heard from licensees and financial planners working hard to implement the Future of Financial Advice (FoFA) reforms prior to July 1 are questions about how it will work, what it will mean for clients and their ability to advise them effectively.
Why and how?
In all the rhetoric and needless politicisation of the bill, the distracting and unhelpful criticism of the advice profession from some sectors has not focused on why the associations have lobbied for more time.
The Tax Practitioners Board (TPB) is in the dark on the best model to implement not only for regulation of financial planners and risk specialists, who will be subject to its code of professional conduct once registered, but also the practicalities of actually registering up to 55,000 (according to the TPB) representatives, authorised representatives and licensees within the three-year transition period.
Practical options
The TPB has approached registration of tax (financial) advice service advisers in a similar fashion to registered tax agents (RTA) and BAS agents, and to do so is relying on information from ASIC that includes “authorised representatives” (who have a unique ASIC identifier) but not “representatives”, who can be employed advisers, paraplanners and other authorised people. Now, just as an employee of a registered tax agent can operate under an RTA licence, could employee representatives operate when their licensee is registered?
This is a case in point for deferral of the implementation of the legislation because reading through the legislation suggests that it would not be the case.
Without labouring the point, what about experience and training for existing financial planners and for new entrants? A newly graduated financial planner with relevant qualifications in financial planning may be able to provide advice under ASIC’s requirements, but not under the TPB minimum-experience guidelines. This will have dramatic effects for new entrants to the sector.
Barrier to entrants
Another hurdle for new entrants is that there is no detail, apart from a recent TPB exposure draft, on minimum course content for the tax training that a financial planner needs to undertake. It may be that a newly graduated adviser who has completed a degree-level unit in tax will not meet the requirements for a TPB-approved course and may need to do further study on top of what they have completed.
After discussions with representatives from several universities and registered training organisations (RTOs), it seems they are not inclined to do massive re-writes of their tax courses. In addition, RTOs – which operate in a price-sensitive market – may rush to be first-to-market with programs that potentially water down the intent of the requirements.
Lack of thought
Critical to the successful implementation of TASA is professional indemnity insurance (PII), ramifications of which have not been sufficiently thought through. Advice suggests that PII may be available when providing general advice only or only in relation to incidental tax advice, in a strictly defined fashion and only in relation to financial product advice, which ignores product non-specific strategic advice.
It may be that registered tax (financial) advice service advisers may be required to take out separate PII, which is both costly and impractical. Relevant to this, the explanatory memorandum to the bill mentions that there are no dispute-resolution obligations under TASA. However, implications for the Financial Ombudsman Service (FOS) and existing dispute-resolution schemes required for financial services licensees under the Corporations Act have not been analysed in the matter of complaints relating to tax advice.
Consult the community
There has been a severe lack of consultation on the implications of this bill, not only in isolation, but also in light of the implementation of FoFA, including the best interest duty, which in a fiduciary sense will also have implications for TASA.
Being at the coal face and seeing what the political uncertainly is doing to the sector and to consumers, I call on Parliament and the regulators to work with associations, PI insurers, FOS, the joint accounting bodies and other key stakeholders to implement an efficient and effective system that works for everybody. That is to enhance professionalism in advice and to protect consumers.
Craig Meldrum is head of financial advice at Australian Unity Personal Financial Services Limited.
Excellent summary Craig. Happy to take on any qualification once a reasonable system is in place that we can follow.