The Financial Planning Association has found itself in the box seat to become a code-monitoring body under new professional standards for financial planners and has taken its first steps on the path to co-regulation after receiving Australian Securities and Investments Commission (ASIC) approval for its opt-in code.
The approval was formally announced yesterday at the opening of the 2016 FPA Professionals Congress in Perth by the association’s chief executive officer, Dante de Gori.
“It’s the first time ASIC has ever approved a code,” de Gori says.
“It’s called the Professional Ongoing Fees Code, and effectively, the technicality of it all is that what they’ve approved what the code says someone will do, but also what effectively they’ve approved is that the FPA has the structure and the resources to administer and monitor the code.
“We’ve got a structure and a framework that they’re already happy with; it may just be a matter of beefing it up in terms of scale rather than the actual structure itself.”
Approval by ASIC is the first time any financial planning association has been approved in a co-regulatory capacity. It paves the way for the FPA to play an equivalent role in monitoring its members’ compliance with new education, professional and ethical standards, due to come into effect from July 1, 2019.
Legislation mandating the new professional standards was introduced into parliament yesterday by the Turnbull government. The legislation will create a new independent body to set the new standards, and to delegate compliance monitoring to approved bodies.
The FPA has won ASIC approval to monitor its members’ compliance with a new professional ongoing fees code, which will remove FPA members from compliance with the opt-in provisions of the Future of Financial Advice (FoFA) legislation.
The objective of the code is to achieve the same result as the legislative requirement – in essence that no financial planner can receive payment from a client without providing a service, and clients must actively sign-up to ongoing service and fee arrangements.
Avoiding the blunt instrument of the law
But approaching the issue through a code instead of the blunt instrument of the law means that opt-in objective can be achieved in a way that fits in better with the way financial planners and financial planning businesses work in practice.
Compliance with the code will be monitored by the FPA itself, and the association will have the power and the obligation to report breaches of the code to ASIC. Because a breach of the code will effectively mean that an FPA member has failed to meet the opt-in obligations of the law, a breach of the code will be treated as seriously by the as a breach of the law itself.
De Gori says FPA practitioner members – Certified Financial Planners (CFPs) and Associate Financial Planners (AFPs) – will be able apply to be subject to the code from July 1, 2017. Members who do not sign up will continue to have to comply with the FoFA legislative requirements concerning opt-in.
“ASIC as part of this process has to release a class order which allows our code to be allowed instead of the law,” de Gori says.
He says being permitted to comply with the code is not automatic for FPA members “because you have to agree to comply with these standards of the code”.
“So we have the [full] FPA code, and the code talks about ongoing advice and the fact that it’s an obligation on a member to provide a service for which they’re paid for,” he says.
“Every member has to abide by the code. If you want to obviate the need to comply with opt-in [under FoFA] you need to sign up to the ongoing-fee code that we’ve produced.
“It’s not a separate code. Within the [full] code there’s a standard that applies to everybody, but subject to you saying no, I don’t want comply with opt-in, I want to comply with the FPA code … there’s a subsection of the code that will only apply to people who sign up to it.
“If you do not sign up to it, then you’re subject to the normal standard in the code.
“You have to sign up to it, because ASIC need to know who’s complying with the law versus complying with the code. And part of that will mean we have a public register of those people, so the public knows, ASIC knows, industry knows, the media knows that Joe Bloggs, financial planner, is signed up to the FPA code versus having to comply with opt-in under the law.”
