When the new assistant minister for Superannuation, Financial Services and Financial Technology, Senator Jane Hume, received her Treasury Department briefing on her portfolio responsibilities in late May, she would have quickly become aware of the challenges immediately confronting her.
Hume, who succeeded in making a name for herself as chair of the Senate Standing Committee on Economics as it traversed issues such as the performance of the Australian Securities and Investments Commission (ASIC) and who had previously worked in banking and for AustralianSuper, will know that amongst her most pressing tasks will be tidying up the roll-out and implementation of the Financial Adviser Standards and Ethics Authority (FASEA) regime.
In doing so, she will be hearing from both the Financial Planning Association (FPA) and the Association of Financial Association (AFA) that FASEA has not met a number of deadlines and that, as a consequence, the Government should act to allow financial planners more time to prepare for and pass the FASEA financial planning exam.
The reality for Hume is that while she is succeeding former Assistant Treasurer, Stuart Robert in the portfolio she is, in reality, inheriting the regime and appointments left in place by the now-retired Kelly O’Dwyer.
Among those appointments are the chair of FASEA, Catherine Walter and the chair of the Australian Financial Complaints Authority (AFCA), former Howard Government minster, Helen Coonan – both of whom are regarded as having placed their particular mark on the two relatively new bodies.
Hume would already be familiar with the changing of the senior executive guard at the Australian Securities and Investments Commission (ASIC), with chair Greg Medcraft being replaced by James Shipton while deputy chair, Peter Kell, resigned and gave way to two deputy chairs – former Productivity Commission deputy chair, Karen Chester and Queens Counsel, Daniel Crennan.
As chair of the Senate Economic Committee, Hume signalled her satisfaction with the changes at ASIC, going to the trouble of congratulating Shipton on the appointment of Crennan, stating: “I am actually so impressed by the calibre of the people you have recruited to ASIC”.
In 2018, Hume also showed her background in financial services when her questioning resulted in former ASIC deputy chair, Kell admitting that the regulator had never actually looked directly at industry funds with respect to their compliance with the best interest duty under the Future of Financial Advice (FoFA) legislation.
FASEA the immediate priority
In listening to the overtures from the AFA and the FPA, Hume will also quickly come to realise that the two organisations have begun speaking with one voice on key policy issues, having been taught by the recent history of mortgage broking commissions that industry unity can win difficult arguments.
Hume will also need to come to terms with the rapidly approaching deadlines attached to the imposition of the FASEA Code of Ethics and the need for ASIC-sanctioned code monitoring bodies.
In doing so, the new assistant minister will need to consult upwards to the Treasurer, Josh Frydenberg, on whether the Morrison Government will pursue its original intentions with respect to a code-monitoring regime or whether it will follow the comments of the man who headed up the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, Kenneth Hayne.
While the Government’s original intention with respect to code-monitoring envisaged a regime run by professional bodies such as the FPA and AFA or by consultancies such as Deloitte or KPMG, Hayne recommended the establishment of a “new disciplinary system for financial advisers”.
Given that financial advisers will have to comply with the new FASEA code of ethics from 1 January, next year and that code monitoring bodies need to lodge their applications with ASIC by 30 June for the regime to be in place by 15 November, this leaves the Government little time to make a firm decision.
The Government’s initial response to the Royal Commission’s recommendations was that it would be introducing a new disciplinary system for financial advisers. However, it remained non-specific about whether this represented a significant deviation from the original FASEA objective of having code-monitoring bodies.
The FPA chief executive, Dante De Gori, together with the AFA chief executive, Phil Kewin, confirmed to Money Management that given the looming requirements of the FASEA exam, extracting Government agreement to an extension of the time-frames represented a priority for both organisations.
De Gori said that when the Government introduced the FASEA legislation into the Parliament it had signalled that advisers would be given two years to prepare for the examination, but that the time taken by FASEA had meant that this had been effectively reduced to 18 months.
The FPA and AFA are hoping that Hume will facilitate the relatively easy legislative/administrative task of delivering advisers a six-month extension to the exam preparation timetable.
However, this will be occurring against the background of FASEA in early May having advised both new entrants and existing advisers to notify their intention to sit the exam, which was allied to setting initial exam dates and locations.
Nonetheless, the AFA’s Kewin said he believed it was imperative that advisers be given the time they were promised to prepare.
Kewin and De Gori are also speaking with one voice on the question of the FASEA Code of Ethics and code monitoring bodies in circumstances where the FPA, the AFA, and the SMSF Association, together with the Boutique Financial Planners, the Financial Services Institute of Australasia and the Stockbrokers and Financial Advisers Association, have signed a cooperation agreement to provide a code monitoring solution for members.
There is common acknowledgement that the ASIC-imposed requirements for operating a code monitoring body are both exacting and expensive and the industry will be seeking clarity from the new assistant minister before committing to proceed.
Bank exits pose new challenges
The major financial planning bodies will also be seeking clarity from the Government on the future funding of FASEA in circumstances where the initial funding has been substantially underwritten by the banks, which are exiting the industry.
The FASEA business plan, released by Treasury, underscored the role of the major banks, naming ANZ, Commonwealth Bank (CBA), National Australia Bank (NAB), Westpac, Bendigo Financial Planning, Macquarie Equities, Suncorp Metway and AMP.
The reality confronting FASEA and the Government is that ANZ, Westpac and Suncorp have already substantially exited the wealth management industry with NAB and CBA looking to follow.
The expectation is that the Government will resort to either an industry levy to fund FASEA or adopt a user-pays model, which might more directly affect individual financial planners.
While the loose-ends around the FASEA regime are regarded as the immediate priority for Hume, the newly-elected Government has already signalled that it has not abandoned its desire to change the default superannuation fund regime.
What is more, the Financial Services Council (FSC) made a point of welcoming the re-election of the Coalition Government with the reminder that the default regime remained to be addressed.
While the Government has signalled its continuing desire to remove the default regime from the industrial awards regime, it has stopped well short of expressing any strong support for the Productivity Commission’s option of a Top 10 defaults model.
The more pressing superannuation policy issue for Hume will be reintroducing the legislation necessary to complete the Government’s Protecting Members Super legislation – something which impacts the commercial underpinnings of insurance inside superannuation.