A large portion of the financial services industry will not be FoFA-ready from 1 July 2013, the Association of Financial Advisers (AFA) has conceded.
AFA CEO, Brad Fox, told riskinfo that while the industry had battled hard to be ready for the commencement of the Future of Financial Advice (FoFA) reforms, the number of parties who will not be in a position to fully comply with the legislation was “much bigger than expected”.
“The whole industry is impacted: advisers, licensees, product providers, and the regulators,” Mr Fox said. “We’ve known for some time that it would be a struggle for all parties to be ready come 1 July. And it’s not for lack of trying.
“The reality is that the industry, ASIC and the Government all significantly underestimated the volume of work the reforms would bring.”
… the industry, ASIC and the Government all significantly underestimated the volume of work
He also pointed to increased pressure on the Australian Securities and Investments Commission (ASIC), which previously confirmed it would adopt a ‘soft’ approach to enforcing the reforms for the first 12 months.
“Unfortunately, it looks like the regulator’s grace period will apply to the majority, rather than the minority, which was not the intention.”
Of primary concern to the AFA is the volume of work introduced by the Financial Disclosure Statement (FDS) requirements.
“The FDS workload is extreme. It has the potential to severely impact on the profitability and sustainability of some advice practices.
“We’ve heard from our Licensee Leadership Forum that they simply have not had enough time to prepare. First, they had to wait for the regulations and ASIC guidance to come through, then using these they have to develop their own compliance position, build the operational processes to support that, and train their advisers; and all of this had to happen just two months out from the start date.”
He explained that businesses were having to find new resources, or re-allocate existing staff, in order to manage the wide range of new compliance tasks.
“Take the identification of a disclosure date. Yes, ASIC has advised it will adopt some ‘no-action positions’ on this, but how much effort do you have to demonstrate to qualify?
“Imagine you have a business that is 25 years old, with 1200 clients. If you assume that it took 5 minutes per client to review the files for the disclosure date, which is very conservative, then you’re looking at a minimum of 100 hours for a single task.”
It has the potential to severely impact on the profitability and sustainability of some advice practices
Mr Fox also pointed out that the detail surrounding the grandfathering arrangements, and a remuneration solution for corporate super advisers, were still outstanding.
“It’s like booking someone for speeding on Monday, when the speed limit won’t be posted until Wednesday. Businesses will be operating on an assumption of how the grandfathering rules will apply, based on the last information we received (in March 2013); but it is highly likely that, once the final details are released, the way these businesses’ processes have been structured may no longer be sufficient.” (Editor’s note: since this article was first published, the Treasury has released the finalised grandfathering guidelines. Click here to view more details.)
And on corporate super advice: “If the remuneration issue is not resolved, we risk shutting the doors on a complete section of the market.”
Mr Fox’s comments come on the back of an announcement by Financial Services Council (FSC) CEO, John Brogden, that he had written to the new Prime Minister, Kevin Rudd, to request an extension to the commencement of the reforms.
Speaking at an FSC event in Sydney yesterday, Mr Brogden said the Council had called on Mr Rudd, Minister Bill Shorten, and newly sworn-in Treasurer, Chris Bowen, to delay the start of both the FoFA and Stronger Super reforms by 12 months (to 1 July 2014).
Mr Brogden said the request was based on “the hard reality” that the industry had yet to see all the legislation and regulation.
He pointed out that the Council was not criticising the Government, but believed it was in their interest to allow the industry sufficient time to comply with “a very ambitious package”.
Mr Fox agreed that some delay would certainly be welcome, but reiterated that the industry should still be congratulated for its efforts to comply.
“The Coalition has said they support a date change, so we hope that this will add to the pressure on Minister Shorten to extend the compliance date. But we’re not begging for an extension because we haven’t tried – the advice industry has done the best it can with the time and information we have been given.”
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