Financial services reform: the road ahead

As the Government implements its financial services reforms throughout 2011 and beyond, it can either choose to do things the 'hard way'; or the ';easy way', writes Mike Taylor.

By at least some accounts, Australian financial planners have entered 2011 in a reasonably optimistic mood but those viewing the state of the planning industry and the state of the global economy would have to be wondering why.

If planners were facing an uncertain environment as they entered 2010 then little has changed as they begin their journey into a new calendar year. As is made clear in this edition’s scene-setting Market Outlook feature, planners and their clients are facing a range of significant unknowns.

For clients there are questions surrounding how their investments should be positioned in the context of European debt and the pace of economic recovery in the US.

For planners there is the looming question of how, precisely, the Government will choose to legislatively implement the proposed Future of Financial Advice (FOFA) changes and the recommendations of the Cooper Review into superannuation.

It should by now be obvious that the Assistant Treasurer and Minister for Financial Services, Bill Shorten, has a number of options open to him with respect to the manner in which he implements the FOFA proposals and the Cooper Review recommendations. In essence, though, it is a question of the ‘hard way’ or the ‘easy way’.

Under either option, the stated objectives of the legislation remain the same: the imposition of bans on commissions and volume rebates, the imposition of a fiduciary duty and the introduction of opt-in arrangements. It then becomes a matter of degrees.

If the industry superannuation funds are to have their way in 2011, then the Government will seek to do things the ‘hard way’ and impose the toughest possible interpretations, resulting in annual opt-ins and tough interpretations around fiduciary duty and volume rebates that will cause significant changes for financial planners, planning practices and dealer groups.

If the Government is inclined to take the ‘easy way’ then it follows it will have listened to the overtures from the financial planning industry and the major institutional players by imposing no more than three-year opt-in arrangements, a reasonably benign interpretation of ‘fiduciary duty’ and a prescriptive approach to volume rebates rather than a total ban.

Then, too, there is the fact that as much as Shorten may feel both philosophically and politically disposed towards pursuing the hard-line industry funds approach, the Government is still faced with the daunting task of navigating the resulting legislation through two houses of Parliament in which it does not have a majority.

Perhaps then, like all good market analysts, the reason for the optimism being expressed by financial planners is that they have already factored in the impact of the negatives.