The opposition has promised to implement the 16 recommendations it made as part of a Parliamentary Joint Committee report on the Future of Financial Advice (FoFA) reforms, but how feasible are these changes for an industry presently complying with the current laws?
Earlier this week, the Liberal Party committed itself to cutting red tape and deregulating the economy, which includes amending the FoFA legislation to reduce compliance costs for small business financial advisers.
More ominously, the opposition has signaled its intention to conduct a financial sector inquiry along the lines of the Wallis Inquiry in 1996. However, no resulting legislation would commence during the first term should it take office.
The 16 recommendations on FoFA include the complete removal of opt in, the simplification and streamlining of the additional annual fee-disclosure requirements, improving the best interest duty, providing certainty around the provision and availability of scaled advice, and refining the ban of commissions on risk insurance inside superannuation, among others.
A legal view of Liberals
Lawyer Richard Batten, a partner at Minter Ellison, believes the most significant changes would be removing general advice from the ban on conflicted remuneration, removing the opt-in requirement, improving the best interests duty safe harbour and excluding life insurance through superannuation from the ban on conflicted remuneration, other than automatic default cover.
It would also appear that some of the opposition’s suggestions are a bit dated, with calls for a regulatory impact statement and a delay in implementing of FoFA having been overtaken by events of the past two weeks.
While Batten believes removal of the opt-in requirement would be widely welcomed, he cautioned that any changes to fee disclosure statements could create additional red tape.
“While welcome, most licensees will already have implemented systems to comply with this requirement,” he said.
Batten is more enthusiastic about clarifying the best interests duty by amending it to explicitly permit clients and advisers to agree to limit the subject matter of advice provided in order to facilitate the provision of scalable advice.
“This recommendation will significantly improve the certainty of the best interests duty safe harbor,” he said.
“It is consistent with the professional role of advisers that they should able to agree on the scope of advice with clients.”
However, the opposition recommendation that proceeds of the sale of a financial planning business between a licensee and its authorised representatives should be specifically exempt from the ban on conflicted remuneration have now been addressed by the regulations.
Cultural change rests on implementation
The Institute of Public Accountants (IPA) said the opposition’s policy to boost productivity and reduce regulation signaled a “cultural change in future policy setting and reduced regulatory burden”, but added that the proof would lie in its implementation.
“There is no doubt that business, particularly small business, is being crippled by regulatory burden,” said IPA chief executive, Andrew Conway. “Any reduction in this burden and the associated red tape as proposed by the coalition’s policy statement must be seen as a step in the right direction.
“One area of the policy that needs further exploration is the proposed amendments to the FoFA legislation. While the IPA supports some of the proposed changes, we need far greater detail in order to make a proper assessment of the impact.
“There has been significant effort and investment to accommodate the FoFA reforms and any changes must be critically analysed to ensure the framework of the financial services sector remains robust and able to deliver accessible and affordable advice to clients,” he added.
“The proposed policy from the coalition rings the right bells, but we have experienced a number of good proposals from past government reviews. What has been lacking is follow-through with implementation and the accountability to make it happen.”