Industry feedback from a range of stakeholders has led to key changes to the Future of Financial Advice amendment legislation, which was introduced into Parliament this week.
Delivered as part of the Government’s Deregulation Package, the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 has been updated to reflect concerns raised during the consultation period. According to the Government, over 50 submissions on the draft legislation were received by the Treasury, from a wide variety of stakeholders, including financial advisers, industry associations, consumer advocacy groups, training and consultant businesses, academics, law firms and individuals.
The first of the changes contained within the Bill is to the exemption of general advice from the ban on conflicted remuneration. Previously, the Government proposed to exempt all general advice from the ban on conflicted remuneration, prompting some to believe this would result in the reintroduction of commissions for investment and superannuation products.
The bill now limits the general advice exemption to employees only
Explaining the change to the House of Representatives this week, Parliamentary Secretary to the Treasurer, Steven Ciobo, said:
“The bill now limits the general advice exemption to employees only and under circumstances in which they have not provided personal advice to the client in the preceding 12-month period.
“In addition ASIC has indicated that it will monitor the use of these provisions as they relate to general advice on complex products and will provide a report to the government in the next 12 to 18 months.”
The second key change to the amendments Bill is the removal of the conflicted remuneration exemption for insurance inside superannuation. For more on this issue, click here.
…this bill does not remove the requirement for advisers to act in the best interests of their clients
Responding to the criticism levelled at the Government for the proposed amendments, Mr Ciobo said all of the essential protections of FoFA would stay, ensuring that consumers are protected from receiving poor financial advice.
He singled out some of the specific reforms that have been targeted by critics, including the best interests duty: “Let me be clear: this bill does not remove the requirement for advisers to act in the best interests of their clients.
“Without the catch-all provision, the best interests duty will continue to ensure that an adviser is taking the necessary steps to properly consider the client’s circumstances, to conduct reasonable investigations into products that would meet the client’s objectives and needs, and to exercise judgment in formulating the advice for their client.”
The FoFA amendments are part of a broader program of deregulation, originally flagged by the Coalition in the lead up to the 2013 Federal Election. At the commencement of Parliament on Wednesday 19 March, the Prime Minister, Tony Abbott, spoke about deregulation and the upcoming Repeal Day (scheduled for Wednesday 26 March).
“More regulation is not the solution to every corporate, community or personal failing. Sometimes, we just have to accept that mistakes are inevitable and that misfortunes are unavoidable. When someone in authority gets it wrong, the best outcome might be a timely resignation rather than more regulation. When it comes to making us act responsibly, good example may be better than more rules,” the Prime Minister said.
He added that the Government’s mission was to save the Australian people money, time and to trust in their common sense.
Opposition Leader, Bill Shorten, delivered a passionate response, drawing specific attention to the proposed FoFA amendments, labeling them a “disturbing proposition”.
“The Assistant Treasurer, with the support of the Prime Minister, is determined to reduce the protections of mum and dad investors…
…because of what you are doing, you are guaranteeing another Storm Financial
“Having seen the lesson of Storm Financial, those people opposite turn their backs on the experience of history. I cannot say when the next financial disaster will happen and I cannot say who the victims will be, but I know one thing: because of what you are doing, you are guaranteeing another Storm Financial and upon your heads it will rest. We will hold you responsible for your abandonment of basic common sense when it comes to consumer protection,” the Opposition Leader said.
Mr Shorten also criticised the Government for the process it will use to enact the FoFA amendments: “The financial services sector faces the very real prospect of having to deal in a short period of time with competing regulatory regimes: the regulations that take effect from 27 or 28 March; the current laws, if the regulations are disallowed in the Senate; and whatever legislative landscape we end up with after 1 July when the parliament has dealt with the government’s legislation. This is a red-tape nightmare dreamt up by the fevered imagination of the Prime Minister of Australia. The Assistant Treasurer appears to be proceeding in a ham-fisted manner, without any regard to the outcomes.”
The Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014has now been referred the Senate Finance and Public Administration Legislation Committee for review. The Committee is not due to issue its report until 16 June 2014. Previously, the Government proposed, where possible, to implement changes through regulations. The regulations are expected to be introduced by the end of March but it is not known how the Committee review will impact the passage of the regulations.
Click here for the industry’s response to the Bill.
To find out why the change to commissions for insurance inside super was omitted from the Bill, click here.
