The Australian Securities and Investments Commission has raised the bar for financial planners who recommend their clients use an investment and administration platform.
The new regulatory requirements appear in ASIC’s revised regulatory guidance on platforms (Regulatory Guide 148: Platforms that are managed investment schemes) and have significant implications for advisers given the prevalence of platforms and the degree to which they are relied on by advisers.
A key element in the new guidance is that ASIC expects advisers to explain to clients how investing through a platform is different from investing directly. This requirement looks likely to increase the length and complexity of statements of advice (SOAs), despite the fact that the regulator is also calling for SOAs to be clear and concise. The regulator expects an SOA relating to a platform to include advice about why a particular platform or particular investments are recommended, including the service offered by the platform and how that service will benefit the client in comparison to the client investing directly. ASIC also expects the SOA to cover the range of investments offered through the platform, how they were selected for inclusion and whether they are appropriate for the client.
Advisers should specifically consider the investment-selection processes and policies adopted by platform operators, according to RG148. This involves considering factors such as the existence and composition of investment or due diligence committees, as well as factors that influence the selection of investments on platform menus. These requirements mirror the disclosure obligations imposed on platform operators themselves. However, while the advice requirements are already effective, the obligations on platform operators to provide the related information don’t apply until July 1, 2014 for operators licensed before June 30, 2013. This transition period for existing operators creates a potential information gap. Advisers looking to meet their own requirements may be unable to do so because the relevant information is not yet being disclosed by those operators.
In addition, ASIC considers that it will generally help clients if advisers identify in the SOA the total fees and costs for investments that the adviser recommends through a platform. The regulator’s view is that this will enable a client to understand the cumulative impact of all fees and costs. Again, the presentation of a “wrapped up” or consolidated-fee position for the whole investment portfolio (including the platform) will add complexity and create challenges for advisers who will need to source the supporting information.
While aspects of this new guidance obviously have their foundations in the new Future of Financial Advice requirements, they are just the latest wave of reforms in relation to advice. We shouldn’t expect to see this as the last word on advice regulation and ASIC has already signalled further guidance on self-managed super funds. Advisers and licensees will therefore need to keep a close watch on developments in this space to ensure that SOA templates, risk management and compliance arrangements are suitably responsive.
Jon Ireland is a senior associate at Henry Davis York.