On March 1, 2016 federal Parliament passed amendments to the Future of Financial Advice (FoFA) legislation that will allow financial advisers 60 days rather than 30 days to issue opt-in notices and fee disclosure statements. This change and other minor clarifications were the only things that survived from the government’s policy statement on FoFA amendments, as issued by Senator Arthur Sinodinos in December 2013.
Another key but moderate change that the industry sought was an extension to 60 days for clients to respond to opt-in notices. The additional timeframe was designed to cater for clients on holidays, and those who are unwell (including in hospital) or otherwise distracted. In order to avoid the potentially very negative consequence of the relationship with their adviser being totally terminated as a result of missing the deadline, a small extension appeared reasonable.
There was every indication that both sides of politics were supportive; however, in the end, resistance from consumer groups resulted in this change not getting up. Consumer groups cynically saw this as an attempt by advisers to be paid for another month. In reality clients have the opportunity to cancel their fees at any time, and immediately on receipt of an opt-in notice, if that is what they wish. It is disappointing that an uninformed view could derail sensible policy modification.
It also highlights what is apparent in that financial advice regulatory policy has become highly politicised and lacks a rational process.
Reluctant to look at FoFA again
Both sides of politics now appear reluctant to have another look at the FoFA legislation, however a good approach to the regulatory process and outcomes necessitates an ongoing assessment of the value of any change. In fact, back in August 2011 the federal government’s Office of Best Practice Regulation (OBPR) specifically commented on the FoFA regulatory impact statements (RIS) stating that the RISs “were not assessed as adequate for the decision-making stage. Consequently, the OBPR has assessed the proposal as being non-compliant with the Australian Government’s best practice regulation requirements. A post-implementation review will be required within 1 to 2 years of its implementation”.
The latest update from the OBPR, with respect to the outstanding requirement for a post-implementation review of the FoFA legislation is that the government has been given an extension until July 2017 to complete the post-implementation review. It will be interesting to observe the outcome.
This unfortunate state of inadequate RISs has been repeated with respect to the current changes the government is seeking to introduce, being the Life Insurance Framework (LIF) and increasing professional and education standards. While sensible, carefully assessed and beneficial regulatory change should be supported, a failure to follow due process undermines the validity of the outcome and the confidence of stakeholders.
Impact on all stakeholders
The purpose of an RIS is to assess the impact of regulation on all stakeholders, including doing a cost–benefit analysis. This is undoubtedly good practice as it should consider the options and assess all the implications, including the prospect of unexpected unfavourable impacts. It is reasonable to seek information on things such as:
- The impact of the LIF on the uptake of insurance, including client segments that might become unviable for advisers to service
- Understanding the impact of the LIF on the balance between independently owned licensees and institutionally owned licensees
- Understanding the number of financial advisers who would need to do further study if the standard is lifted to a degree or equivalent and how many might leave the industry as a result.
With respect to the LIF, the government has argued that a RIS is not required as ASIC Report 413, the Financial System Inquiry (FSI) Report and the Trowbridge Report have already investigated this matter. This is most definitely flawed logic, in that the ASIC report did not make any recommendation for change and the FSI and Trowbridge reports recommended something different. The FSI made no recommendation on Life Insurance remuneration in their interim report. What they proposed in the final report did not present any impact assessment and neither was it subject to open and transparent assessment. Neither did the Trowbridge Inquiry look at the consequences of what was proposed.
No assessment of consumer impact
While everyone is arguing that this is being done for the benefit of consumers, there is no research to assess what the consumer impact will be. It is also noted that the Senate Economics Committee Inquiry did not holding hearings and the deadline was very tight. In the context of some large powerful stakeholder interest being involved, a rushed process fails to deliver the necessary oversight and confidence in the overall outcome.
The consumers of financial advice and those delivering this highly valued service deserve better than unsupported excuses to avoid complying with the Government’s own requirement to assess the impact of major regulatory change. Financial Advice regulatory change needs to be depoliticised and return to complying with best practice standards.
