Financial planning industry and professional associations have breathed a collective sigh of relief over the decision to reinstate a number of elements of the disallowed Future of Financial Advice (FoFA) regulations.
Following the bipartisan deal struck between the Government and Opposition on Tuesday, a motion is due to be filed in the Senate when parliament sits for its last session this year.
Of greatest concern for the industry were the grandfathering provisions, which both sides of politics have acknowledged were caught up by FoFA as an unintended consequence of the legislation.
Financial Planning Association
“This is welcome news and will clarify what has been a source of some concern for many financial planners,” says Mark Rantall, chief executive officer, Financial Planning Association (FPA).
He believes both parties recognised this was an anomaly that was carried through the original FoFA drafting, and needed to be rectified.
“Both the opposition and the government were trying to fix that, and it was part of the original regulation tabled in parliament, that was voted down.
Rantall describes the outcome as “a vote for common sense, to sort this out and to not inadvertently either force financial planners to stay with licensees or put at risk the ability to buy and sell businesses.”
“They were quite significant ramifications, we’re not talking about admin paperwork here, but the ability to transfer property rights,” he says.
“The Labor party, when they were in office, realised this was something that needed to be fixed, but didn’t have time to do this before the [last federal] election was run, and the Coalition has undertaken to fix it.
“This is a great result…especially given the disruption caused by the voting down of the FoFA regulations.”
Association of Financial Advisers
“It’s been very sensible of the Australian Labor Party to come with the coalition on at least dissolving grandfathering, as it is a significant competition issue, and there’s also the consumer issue,” says Brad Fox, chief executive officer, Association of Financial Advisers (AFA).
Commenting more broadly on the disallowance of the Government’s FoFA amendments, Fox also refers to the opt-in provisions.
“There’s a significant issue there about whether the systems and processes, particularly for the larger organisations, will be in place in time. That’s something the market will be assessing right now,” he says.
Financial Services Council
Echoing the AFA and FPA, the Financial Services Council (FSC) describes the move as a sensible outcome.
“The bipartisan agreement provides certainty and stability for small businesses in the financial advice industry,” said Andrew Bragg, director of policy, in a statement issues by the FSC.
“It means that small financial advice practices will not lose value when businesses are sold. It will also assist sustainability for advice businesses while they transition to new business models.”
“This is good news for small businesses as they will not be subject to unfair, retrospective losses.”
Opt-in provisions
The disallowance of amendments to FoFA also means the opt-in provisions will now apply, with all financial planners required to obtain an agreement to proceed with the advice relationship from all new clients post-July 2013. This agreement is required at least once in every two-year period.
One way professional and industry associations can work around this is by obviating their members’ requirement to comply using their Code of Conduct.
The FPA’s code has already been lodged with ASIC, according to Dante De Gori, the association’s general manager of policy and conduct. He says members should not only be familiar with the FPA’s six remuneration principles, but have built them into the advice process.
Speaking at last week’s FPA Congress, Peter Bobbin, a partner in law firm Rockwell Oliver, says that if an FPA member’s conduct is ever questioned in court, the court will examine their compliance with the FPA principles.
According to Fox, the AFA has also previously made such a commitment to the Coalition. “We have a board meeting next week, where we’ll have that on the table again as to how we go about doing that.”
However, he expresses some uncertainty around the rigour of such a move. “We also need to assess whether an adviser sees there is a benefit form that, or whether it would be an easier duty than what the code would require.
“We’ve previously seen advantages, but we wonder what it means in the public space, what’s the perception of this like.
“It just doesn’t sound right, it doesn’t feel right. We already have a Code of Conduct, and we’ve had negligible complaints against our members in the last seven years, so our code works.
“Whether having an ASIC-endorsed code is a benefit or not is what we’re weighing up,” he says.
