The Financial Services Council's position on life insurance churn proved particularly controversial, attracting criticism from the likes of Synchron's Don Trapnell. It is the Top Five List's number-one policy issue for 2012.
1. The FSC’s churn policy
The Financial Services Council’s (FSC’s) proposed three-tiered claw-back policy to counter so-called “churning” of life insurance policies caused considerable angst among risk advisers, with Synchron director Don Trapnell one of the most outspoken critics.
In the face of suggestions that the FSC collaborated with life companies in arriving at a solution that unfairly targets advisers, FSC chief executive John Brogden insists the self-regulating approach is far preferable to an inevitable intervention from Government.
Further clouding the issue is an absence of a generally accepted definition of churning (with lapses due to death and retirement sometimes included) and an absence of reliable data.
However the Australian Securities and Investments Commission (ASIC) has indicated that it has found churn to be a serious issue, and has publicly supported the FSC’s approach.
The FSC is currently working with the Association of Financial Advisers (AFA) and Financial Planning Association (FPA) on an outcome that may be more palatable to advisers, with hints that the three-year responsibility period may be scaled back to two.
2. APES 230
The Accounting Professional and Ethical Standards Board’s updated ethical standards guide, APES 230, is due to be implemented on 1 July 2013, the same date the Government’s FOFA reforms take effect.
The new standards have drawn widespread criticism from the accounting community, particularly the Institute of Public Accountants (IPA) and accounting-focused financial advice dealer group Count Financial.
The most controversial standards are two deemed to go beyond what was outlined in the Government’s FOFA reforms, namely a complete ban on commissions (including from insurance and mortgage broking services) and asset-based remuneration.
The APESB has since hinted at permitting an element of grandfathering of some commissions, with transitional provisions allowing for the continuation of commissions on pre-existing arrangements up to 2018.
Given the significant number of accountants that now also offer advice services, Count chief executive David Lane has suggested many might be driven to cancel membership from professional bodies signed up to the new standards –because the costs would outweigh the benefits.
The IPA has strongly rejected the new standards and has stated it will look to develop its own separate framework.
3. FOFA: Volume bonuses and grandfathering
After two or so years and three or so tranches, the Government’s drawn-out Future of Financial Advice legislation finally passed through Parliament in March this year, with the start date later pushed back to a more realistic 1 July 2013.
One of the major remaining grey areas, however, revolves around exactly what arrangements can be grandfathered, with the issue currently under consultation under CP 189.
ASIC has so far made clear that any volume bonuses paid to advisers or advice licensees will be viewed as conflicted remuneration, and the onus will be on those receiving the payments to demonstrate otherwise – that is, that the payments did not influence the advice provided.
Although arrangements put in place before 1 July 2013 will be grandfathered, it is not yet clear whether a client changing advisers, or an adviser changing licensees, will allow those grandfathering arrangements to continue.
Platform operators are also awaiting clarity on exactly how volume-based shelf space fees paid by fund managers will be grandfathered, but essentially they will be banned unless it can be shown that the payment is “a reasonable fee for a service provided to the funds manager by the platform operator or another person”, or if it is a discount or rebate that could be reasonably attributed to scale efficiencies.
4. FOFA: Opt-in deal and codes of conduct
A watering down of one of FOFA’s most controversial elements – a two-year opt-in requirement – was central to garnering agreement with key independent MPs and allowing FOFA’s passage through Parliament.
The proposal that an adviser could obviate the need to comply with opt-in by being bound by a suitable, ASIC-approved professional code of conduct was formulated by the FPA and Industry Super Network, but was not supported by other key bodies such as the AFA and FSC.
Shadow Financial Services Minister Mathias Cormann was also highly critical of the deal.
The FPA’s support was partly based on an element of the agreement that the term ‘financial planner/adviser’ be enshrined in law, a move which took a big step closer to becoming reality when Shorten recently released draft regulations on this matter for consultation.
5. Accountants’ exemption and limited licence
The accountants’ exemption, which allows accountants to advise clients on setting up and closing self-managed super funds (SMSFs) without needing to hold or be licensed under an Australian financial services licence (AFSL), has become somewhat out-dated as business models have changes and the popularity of SMSFs has skyrocketed.
It was announced the exemption would be removed as part of the FOFA changes, but accountants were faced with a period of uncertainty while waiting to find out what measures (if any) would be brought in to replace the exemption – or whether advising on SMSFs would be restricted to those holding an AFSL.
In June this year Minister Shorten announced a limited licence would be available to accountants, allowing them to advise on SMSFs as well as basic deposit products, general and life insurance, securities and simple managed investment schemes. Draft regulations were released for consultation on 28 November.
The move was broadly welcomed by the industry, including the IPA, FPA, SPAA, AMP, MLC and large accounting group WHK.
