2019 – a year of uncertainty from beginning to end

15 November 2019

The financial advice sector will finish 2019 much as it began: Uncertain.

Importantly, the root cause of that uncertainty remains the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry even though the Commissioner, Kenneth Hayne, delivered his final findings and recommendations nigh on nine months’ ago.

The continuing uncertainty stems from the reality that the Federal Government has chosen to implement virtually all of Hayne’s recommendations, notwithstanding the amount of parallel policy implementation which was already on foot not the least of which being the Financial Adviser Standards and Ethics Authority (FASEA) regime.

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Thus, primary amongst the uncertainties confronting advisers as they close out 2019 is what Hayne’s recommended Single Disciplinary regime for financial advisers will look like, what it will cost and how it will be funded.

Like much of Hayne’s findings, that applying to the single disciplinary body was vague, and there was little discussion about how it might impact the FASEA regime, particularly the legislated need for the establishment of code monitoring authorities to oversee the FASEA code of conduct.

Thus, the Financial Planning Association (FPA), the Association of Financial Advisers (AFA), the SMSF Association and the other members groups of a consortium established in the closing months of 2018 to establish a code monitoring authority were left wondering.

Initially, the Treasurer, Josh Frydenberg, signalled the Government’s intention to proceed along the path of having Hayne’s single disciplinary body sit in parallel with the FASEA code monitoring bodies but, over time, it became increasingly obvious that the Hayne solution sat in conflict with the industry self-regulatory concept of code monitoring authorities.

Thus, barely three months out from the code monitoring authorities becoming law, Frydenberg stepped away from the one element of industry self-regulation tied up in the

FASEA regime by effectively declaring that code monitoring authorities would not be established and that the Government would be proceeding with the single disciplinary body.

So, after more than a year of work, the expenditure of thousands of dollars and advertising to attract suitably qualified executives, the FPA, the AFA and the other members of the Code Monitoring Australia consortium found themselves high and dry.

Frydenberg offered token thanks to the industry bodies for their involvement but said the “the Morrison Government is accelerating the establishment of a new disciplinary system and single disciplinary body for financial advisers as recommended by the Royal Commission”.

“The Government will work towards establishing the new body in early 2021, subject to the passage of legislation which will be introduced into the Parliament next year,” he said. “A long term sustainable solution based on Commissioner Hayne’s recommendations will replace the role of code monitoring bodies which were due to be established by industry associations under professional standards reforms.”

Given the amount of work which had been put in to establishing a code monitoring authority it was hardly surprising that the FPA and AFA expressed their disappointment at the Government’s announcement.

Indeed, the FPA in particular had invested heavily in pursuing a part in the code monitoring regime in circumstances where all financial advisers would have needed to sign up to such a body.

The degree of the FPA’s commitment to the regime was revealed in a number of submissions to Treasury in which it supported draft legislation not least because it might have allowed the Australian Securities and Investments Commission (ASIC) to share information with code monitoring bodies.

While Frydenberg undertook to that Treasury would immediately begin engaging with the associations which made up the Code Monitoring Australia along with consumer representatives and other stakeholders including the holding of roundtables, little genuine progress appears to have been made.

FASEA regime still a work in progress

The roll-out of the Financial Adviser Standards and Ethics Authority (FASEA) regime remains a work in progress, but at the close of 2019 the foundations are firmly in place, particularly the centrality of the adviser exam.

However, the uncertainty continues to dog the Authority, not least because of the time taken to put key building blocks in place most recently around its conduct of ethics and especially Standard Three.

The degree to which continued uncertainty around the code of ethics was causing angst in the industry was revealed by the FPA’s angry response to FASEA’s release of guidance around the code which it described as raising more questions than it answered.

“With less than 50 business days before the code is due to come into effect, FASEA has completely failed both in their obligation to consult and to provide clear guidance on how its standards will work in practice,” said FPA CEO Dante De Gori.

“The process has again been greatly disappointing and completely inadequate, which has produced guidance that is confusing, out of touch and at odds with existing financial planning laws and standards.

“After two and a half years, the FASEA Board of Directors has yet to consult with any financial planning professional bodies or their members and they appear to be more interested in academic theory than making a genuine effort to improve standards in the financial planning profession for the benefit of consumers.”

Among other problems, FASEA’s code clashes with the Government’s Royal Commission Road Map, released only two months ago, and the grandfathered commissions legislation passed by the Parliament just weeks ago.

“Financial planners and even the public are confused about which standards should be followed – those in the code of ethics set by FASEA or those in corporations law set by the Australian Parliament,” added De Gori.

The FPA now urgently calls on the Government to step in, and to recognise that FASEA has again failed to deliver its mandate to consult and deliver, this time with the Code of Ethics and accompanying guidance.

“FASEA’s website still claims that it will release a draft of the guidance document for public consultation before it is finalised, demonstrating the scope of its failure to consult,” the FPA said.

The FASEA code of ethics remains contentious, with some financial advisers pointing the underlying make-up of the authority board and what they see as the undue influence of consumer representatives.

The AFA has been equally scathing of FASEA over its code of ethics, with the organisation’s general manager, policy and professionalism, Phil Anderson using a communication to members to argue that the FASEA board appeared to have chosen to use the code of ethics as an opportunity to rewrite the law.

“As a result, the entire financial advice sector is left completely uncertain as to what will be permitted under the code and what will not, with less than two months until commencement and no obvious way to fix this problem,” he said.

“With all forms of commissions and asset-based fees now in doubt, 57% of financial adviser practice income is at risk, as a result of this version of the code of ethics. This will impact both financial advisers, but also their clients, who might be forced to change their adviser’s remuneration arrangements at very short notice.”

Anderson then argued that the financial advice industry should reject the code of ethics as it had been produced by FASEA and, at the same time, ask the Federal Government for an extension.

On the upside for FASEA, the first two adviser exam have generated pass marks of 90% and 88% - well above what was originally expected.

Less certain for financial advisers is how much time they will have to prepare and sit the exam in circumstances where, at the time of writing and notwithstanding a undertaking from the Assistant Minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, the Government had still not introduced legislative amendments to extend the FASEA time-table by on year.


One area which is no longer uncertain for financial advisers is the Government’s end-date for remuneration which was grandfathered under the Future of Financial Advice (FOFA) regime with the Treasurer, Josh Frydenberg, confirming it will be banned from 1 January, 2021.

However, what is not certain is when individual product manufacturers will actually end grandfathering with a number of providers signalling that they will be moving much earlier.

Also uncertain is the degree to which some grandfathered commissions will be rebated to customers with both the AFA and FPA pointing out that the structure of some products making this almost impossible.

Also uncertain is the role which will ultimately be played by the ASIC with the Government having tasked the regulator with monitoring and reporting on the extent to which product issuers are acting to end grandfathering of conflicted remuneration in the period between 1 July 2019 and 1 January, 2021.


Risk advisers will be hoping that the fall-out from the Royal Commission will have dissipated before the Life Insurance Framework (LIF) is reviewed next year.

The Royal Commission final report took a negative view of the current regime but the Government signalled that it would allow the LIF regime to play out.

However, ASIC commissioner, Danielle Press flagged little more than a month ago that the regulator would be conducting a surveillance of life/risk advice as part of its broader work in reviewing the framework.

“In undertaking the review we will consider the factors identified by the Royal Commission and, if we think the reforms have not been effective, we will consider recommending to the Government that the cap on commissions be reduced further.” 

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