‘Full steam ahead’ is the overarching message flowing out of the much-anticipated report on the Future of Financial Advice (FoFA) reform Bills, with no recommendation issued to delay the proposed 1 July 2012 commencement date.
Released by the Chair of the Parliamentary Joint Committee on Corporations and Financial Services (PJC), MP Bernie Ripoll, the report (click here) makes 15 recommendations about a range of reforms included within the proposed legislation.
However, the PJC failed to reach consensus on the issues raised by the industry during its review, and as a result, the Coalition members of the Committee issued a secondary, dissenting report, with a contrasting set of recommendations (see: Coalition Calls for Changes…).
While the recommendations contained in the PJC’s report do not automatically mean they will be adopted by the Government or even passed by Parliament, some of the key messages in the report, from the adviser perspective, include:
Opt-in and Annual Renewal Statements
- That client opt-in regulations should continue to underpin the basis of the FoFA reform agenda
- The proposed annual renewal statement, intended as a supplement to the two-yearly opt-in renewal notice, should be retained
- A rejection of the ‘opt-out’ option proposed by many within the financial services sector because the PJC believes that the annual fee disclosure and opt-in obligations ‘… will make financial advice more transparent’
- Observations about the ‘vagueness’ attributed to the various cost estimates of opt-in, where interest groups have adopted differing assumptions
Best Interest Duty and Scaled Advice
- The Best Interest provisions should continue to form a basic plank within the FoFA reforms
- That the Best Interest duty does allow for the provision of scaled advice
- A concession in relation to the wording of the Best Interest duty (as set out in the Explanatory Memorandum) that advisers should be required to take into account the client’s ‘relevant’ circumstances, rather than their ‘overall’ circumstances
Conflicted Remuneration and Risk Products Inside/Outside Super
- No significant changes on recommendations regarding conflicted remuneration issues
- Rejection of arguments that commission remuneration for advisers should be allowed inside superannuation if personal advice is delivered, rather than being based on the type of risk products being recommended
- A recommendation that ASIC conduct shadow shopping exercises post-implementation of FoFA to monitor whether conflicted advice is being provided on risk insurance outside superannuation
Overseas Training/Conferences
- A softening on restrictions in relation to overseas training events and conferences
Cost and Implementation Timing of the Proposed Reforms
- Rejection of what the PJC refers to as ‘wild estimates’ made about the potential job losses that will occur as a result of implementing FoFA reforms, and re-evaluation of previous estimates that were in part based on proposed reforms that no longer form part of the final package
- Rejection of calls for implementation delays, based mostly on the argument that the industry should have 12 or 24 months in which to prepare for annual fee disclosure requirements for new clients and biannual opt-in agreements. The PJC notes the ‘facilitative compliance approach’ recommended by ASIC towards infractions during this initial period.
Addressing the implementation schedule, where 1 July 2012 continues to be the target commencement date, the PJC said:
‘… the committee notes Treasury’s comment that it expects the draft regulations will be available for public consultation during March 2012. This will give the industry at least three months in which to comment on the draft regulations and know of their final form…‘
The 200+ page report addresses each of the proposals contained within the first two tranches of the FoFA legislation Bills. It details the issue, its intent and the opinions expressed by industry contributors, both for and against. The PJC summarises its position on each issue before detailing its own key arguments.
Click here to download the full report from the PJC (noting the summary of 15 recommendations commences on page 13 of the PDF document).
Clearly they are not listening or interested in realities.
Look at the list of the members of the PJC, I don’t have much faith in it. They are all politicians. I once have had a former senior federal minister sitting in front of me seeking my advice for retirement. That minister said humbly that he didn’t quite understand the rules.
I wonder how and base on what that they pass/assess laws while they don’t have expertise. This situation applies to many areas other than financial services. Hope I am not too groomy about politicians.
Eventually, all the objections tabled will count for nothing.
The ALP members of the PJC, Shorten and Industry Super Funds will ensure that there will be minimal changes to the final legislation.
Opt-In, scaled advice, excessive disclosure of earnings, fees etc in the financial services industry when compared to any other industry and the continuance of non-transparent fees in Industry Super Funds will happen.
We can only hope that the Coalition will change the legislation when it gains office!
On the 6th of October 2011, The Prime Minister herself stood shoulder to shoulder with the Industry Super Network and her union mates to proclaim .
“You stood with us to get rid of conflicts of interest and the excessive fees. You stood with us to secure the iconic ‘opt-in’ policy to bring fairness to financial advice. You stood with us to bring simple, low-fee super accounts to every worker who needs one. You stood with us to distribute super tax concessions more fairly so that all Australians benefit. You play a role in broader policy debates, on occasion at the vanguard of public policy debates….blah blah blah….
And the result is yet another disaster in the making which has the interests of clients ignored for the glorification of the union bent industry funds.
The result is more cost to consumers and a skewed approach to benefit the Industry funds and the union mates of this useless government. Overall, the objectives set out have again been hijacked at the expense of the population at large not to mention the thousands of planning businesses and their respective staff. Labor and their pathetic leaders are akin to Nero watching as Rome Burns. Not a bloody clue among the lot that Labor has. Lets face it they cannot even run a damn canteen let alone the economy.
The sad thing about this is that many people who have great experiance and who believed that by making accurate, concise, well thought out, fair comment, with invaluable advise and an overiding commitment to bringing about a workable solution to unworkable red tape, ill thought out ideas and destructive policy, have now found how politics really works.
The only solution is to get a firm commitment from the Liberal Party, to throw out these disasterous policies as soon as they win the next election
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