The Federal Coalition has criticised the Government’s Future of Financial Advice reform proposals in their current form and has issued a Dissenting Report written by Coalition members of the PJC Inquiry.
In an environment where the Coalition believes the current FoFA reform proposals will lead to increased red tape and increased costs for consumers, as well as reduced consumer choice, Coalition members of the PJC have detailed 16 recommendations in their Dissenting Report. These include a recommendation to delay the implementation of the proposed reforms.
In a statement supporting the Dissenting Report recommendations, Shadow Assistant Treasurer and Shadow Minister for Financial Services and Superannuation, Senator Mathias Cormann, said the Coalition members of the PJC had concluded that FoFA in its current form is:
- Unnecessarily complex and in large parts unclear
- Expected to cause job losses in the financial services industry
- Legislating to enshrine an unlevel playing field amongst advice providers
- Likely to cost about $700 million to implement and a further $350 million per annum to comply with according to conservative industry estimates
Senator Cormann’s statement added that Parliament needs to be mindful that the current FoFA proposals are already causing an increased concentration of advice providers driving an undesirable reduction in competition and choice for consumers.
He said the Government has failed to achieve the right balance with FoFA and that any reforms in this area need to strike the right balance between appropriate levels of consumer protection and the need to ensure the ongoing availability, accessibility and affordability of high quality financial advice.
Senator Cormann also raised the issue of the Government’s failure to adhere to its own Office of Best Practice Regulations when assessing the cost/benefit implications associated with a number of the key reform proposals.
Amongst the 16 recommendations in the Dissenting Report are:
- A call to scrap the contentious client opt-in proposals
- A recommendation that the implementation timetable for FoFA be aligned with that of the MySuper reforms, due to come into effect on 1 July 2013
Senator Cormann confirmed the Coalition will not support the FoFA Bills in their current form (see also:FoFA Report Released…).
The 16 Recommendations made by Coalition Members and Senators
Recommendation 1
That the Parliament defer consideration of the FOFA legislation until the government has submitted a full Regulatory Impact Statement in relation to the legislation currently before the Parliament which is compliant with the requirements of the government’s own Office of Best Practice Regulation.
Recommendation 2
That the commencement date of this legislation be timed to coincide with the commencement date of the government’s proposed My Super changes, which are currently scheduled to commence on 1 July 2013. The commencement date should provide at least a 12 month period from the date of finalisation of all legislation and associated regulations to enable an orderly transition and implementation period.
Recommendation 3
That the Opt-in arrangements contained in the Corporations Amendment (Future of Financial Advice) Bill 2011 be removed from the Bill.
Recommendation 4
That the annual fee disclosure statements contained in the Corporations Amendment (Future of Financial Advice) Bill 2011 be prospective only as per the government’s long standing commitment and that they should not apply retrospectively to existing clients on the basis that the increased costs – ultimately borne by consumers – far outweigh the questionable additional consumer protection benefits.
Recommendation 5
That the annual fee disclosure statement requirements be amended from “detailed” prescriptive information and inflexible issue rules to “summary” information only “given” at least annually to the client.
Recommendation 6
That section 961B(2)(g) be removed from the proposed Best Interests Duty to remove uncertainty about the practical operation of the Duty.
Recommendation 7
That the best interests duty in the proposed legislation be amended 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’.
Recommendation 8
That no changes to existing remuneration structures be made where risk insurance is purchased by an individual consumer who has received specific advice on such insurance, whether such risk insurance is purchased inside or outside superannuation or whether such risk insurance is purchased through an individual policy or through access to a wholesale group policy.
Recommendation 9
That any ban of commissions on risk insurance in superannuation be limited to automatic insurance cover within superannuation funds where individuals have not accessed any specific advice, namely in default superannuation arrangements.
Recommendation 10
In relation to monetary conflicted remuneration that:
- (i) ‘General advice’ should be specifically exempt from the definition of ‘conflicted remuneration’
- (ii) That the 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; and
- (iii) That section 963B(1)(c) be amended to link the payment for advice provided to a specific advice provider (rather than to any representative of a licensee) and to apply only where there is a causal link between past advice and current advice.
Recommendation 11
In relation to non monetary benefits:
- (i) The legislation be amended to clearly state that non monetary benefits can be provided by a licensee to its employee authorised licensed representative or representatives;
- (ii) The Explanatory Memorandum of the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 be amended to make it clear that the $300 limit should apply on a per employee basis rather than apply as a $300 aggregate across all employees;
- (iii) The training exemption in the legislation should permit training which is relevant to conducting a financial services business rather than be limited only to the provision of advice.
- (iv) The location of training, including conference location, should not be geographically limited to ensure that the Australian financial services industry remains world class; and
- (v) Subsection 963C(d)(ii) be amended to read “the benefit is related to the provision of financial services to persons as retail clients”.
Recommendation 12
In relation to volume based fees that Division 5 should be amended as follows:
- (i) Section 964 should be amended to define the terms “fund manager” and “fund manager’s financial products” so that the definition does not capture other providers that are not intended to be caught by this section;
- (ii) Shelf space fee should be explicitly defined to minimize the unintended consequence of capturing entities and payments not intended to be the subject of any ban;
- (iii) Section 964A should be amended to prohibit the paying or passing on of remuneration from a platform to a licensee or representative to clearly reflect the intention of the ban;
- (iv) Section 964A should be amended to expressly exempt general and risk insurance from the application of Division 5.
- (v) Flat dollar shelf space fees should be expressly carved out of Division 5.
- (vi) That Section 964A(3)(b) be amended to delete the words “does not exceed an amount that may reasonably be attributed to efficiencies gained by the funds manager because of the number or value of financial products obtained by a fund manager”. This will permits rebates from fund managers to product providers/platforms in line with government announcements, to ensure system neutrality and to retain consumer scale benefit discounts.
Recommendation 13
That sections 1528(1)(b) and 1528(2)(b) should be deleted because they retrospectively ban long-standing contractual payments from platform providers.
Recommendation 14
The anti-avoidance provision must only apply prospectively and not capture or render existing legal arrangements as unlawful. The provision should be amended to carve out legally permitted, exempted or grandfathered arrangements.
Recommendation 15
That Parliament ensures that the exercise of the enhanced ASIC powers contained in the Bill is subject to appropriate administrative and judicial review in the same way as other decisions made by government agencies.
Recommendation 16
- That the FOFA legislation be amended to:
- Provide a comprehensive definition of the term ‘intra fund advice’
- Ensure that ‘intra fund advice’ is general in nature only, similar to the provisions relating to basic banking products
- Ensure that any financial advice accessed within a superannuation fund beyond such general advice be expressly subject to the best interests duty
- Ensure that any financial advice accessed within a superannuation fund beyond such general advice be paid for by the person accessing this advice without any cross-subsidy from other fund members
- Repeal the existing ASIC Class Order exemption as it would be superfluous once intra-advice is properly defined within the FOFA legislation
