Government offers its final FOFA concession
Few people in the financial planning industry will have failed to notice, via draft legislation released by the Treasury, that the Federal Government has delivered what will probably be its final concession with respect to its Future of Financial Advice (FOFA) changes – a 12-month extension of the transition date to 1 July, 2014.
Astute readers of the political calendar will recognise that this is about nine months after the Federal election is currently due to be held on 14 September, meaning that any newly-elected Coalition Government will have time to signal its desire to pursue legislative or regulatory amendments.
In truth, though, there is little in the Treasury’s legislative draft – or the conflicted remuneration guidelines issued by the Australian Securities and Investments Commission (ASIC) - which is likely to demand any immediate remedial action the part of the Coalition in circumstances where there is generally bipartisan agreement with respect to the core elements of the approach outlined in the Treasury draft.
The simple facts of the matter confronting financial planning practices is that the material issued by ASIC and the Treasury are consistent with the broad findings of the bipartisan report which emerged out of the Parliamentary Joint Committee into Financial Services (the Ripoll Inquiry).
Further, the industry itself has long accepted the inappropriateness of trailing commissions and other forms of remuneration directly linked to product sales.
The core message planners should have drawn from last week’s Treasury draft dealing with grandfathering arrangements and the ASIC conflicted remuneration guidelines is that some of the commercial factors underlying practice sales and acquisitions are being changed irreparably.
Similarly, financial planners will need to be more conscious of the consequences for their client relationships if they choose to change licensees.
The bottom line is that while the Treasury draft has proffered a longer transition time to the new regime (1 July, 2014), the new rules are such that financial planning businesses will be forced to change their commercial models and adapt to the new regulatory reality much more quickly than that.
The grandfathering arrangements will certainly allow planners to maintain existing client relationships, but it is clear that, over time, their ability to maintain this “grandfathered” status will become increasingly difficult.
What should be clear to the financial planning industry, however, is that the ASIC guidelines and Treasury legislative draft released last week will probably represent one of the last cogent pieces of the FOFA framework by this Government before the Federal election.
With only a few weeks to go before Parliament adjourns ahead of the May Budget sittings, not much time remains for the Government or its agencies to deliver substantially more on either FOFA or Stronger Super.
On that basis, planners now broadly know the rules they will be expected work under in the immediate years ahead.
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