Anthony James and Jim Boynton explain why financial planners shouldn’t delay their FOFA implementation.
With the Future of Financial Advice (FOFA) legislation having now passed, the wealth management industry faces a considerable implementation challenge ahead of 1 July, 2013.
Fortunately, we’ve seen much progress across the industry, with a number of significant FOFA implementation programs in place – ranging in status from the ‘gearing up’ to the ‘well advanced’.
Given delays in the release and passage of the legislation – not to mention residual uncertainty as we await final regulations, policy and industry body guidance – it’s understandable that a number of players have remained in the ‘wait and see’ camp – delaying implementation pending clarity on how the reforms will affect their businesses.
Nevertheless, with just over 10 months to get ready, the time for accelerating FOFA implementation is upon us. With this in mind, we offer the following five regrettable reasons to delay your FOFA program further:
1. I’m waiting to see what my competitors do
As advisers to the industry (albeit with a different focus), we’re each seeing a range of responses to the strategic and legal questions posed by FOFA.
What the best prepared organisations are learning is just how long the process of designing and then implementing solutions that align to their unique strategic, cultural and customer profiles can be.
They are also realising that each key question invariably involves strategic decisions with the potential to shape the future, and with it, the sustainability of their business models. (What are the impacts on margins across our value chain?
How will this impact our customer relationships?
Will we remain an employer of choice and do we have the right mix of resources going forward? What platforms and products should we be focussed on?)
In short, none of the FOFA measures really invite a ‘one size fits all’ response.
2. I can’t do anything without final ASIC policy or regulations
Regardless of whether you are a planner, platform or product manufacturer or somewhere in between, there is a lot to do in the next 10 months.
Further, the Australian Securities and Investments Commission's (ASIC’s) policy and regulations are unlikely to be very relevant to many strategic decisions, and will be of limited relevance to the bulk of the implementation tasks.
3. We moved to fee-for-service years ago – the changes don’t affect us
If there is one lesson to have emerged from all well developed FOFA programs to date, it is how many different arrangements are potentially impacted by the conflicted remuneration or banned remuneration provisions.
What’s also clear is that FOFA is impacting all parts of the value chain – from advisers and their licensees to ‘platform operators’ and product manufacturers.
If your organisation owns, operates or uses any kind of platform or custodial arrangement, has clients with any kind of geared investment, provides any sort of non-monetary benefit to your advisers, receives any kind of rebate or commission from any source, pays or receives any form of payment based on volume, or has any number of other common arrangements in place, a range of critical questions needs to be asked and answered.
No business model we’ve seen – in any part of the value chain – has the luxury of turning a blind eye to the FOFA changes. A number of wholesale businesses have been surprised also by how FOFA impacts their businesses.
4. FOFA is essentially a compliance task not a strategic issue
In our experience, FOFA implementation programs are typically falling into two camps:
- Programs treating FOFA as primarily a ‘compliance’ task; and
- Programs treating FOFA as first and foremost a ‘strategic’ issue impacting the future success of the business.
There’s little doubt that the programs treating FOFA as a strategic business issue are typically progressing more effectively – not only because these programs tend to be more attuned to the ‘unintended consequences’ of the reforms (which can have significant impacts on business revenues), but because they invariably have higher levels of engagement from senior leaders who can make the right kinds of strategic decisions as they are required.
Compliance oriented programs can suffer from inertia as we await guidance from ASIC and the Government.
5. We still have plenty of time
Perhaps the easiest way to determine whether you are already ‘behind the 8 ball’ is to ask the following questions.
Are we confronting key questions such as:
- How will products be distributed post-FOFA and does product pricing need to change?
- How much of our revenue will be grandfathered?
- Will it be too difficult to rely on the grandfathering?
- Will my adviser incentive schemes be competitive?
- How will bundled fee structures work post-FOFA?
- How can I make it easy for clients to pay fee for service?
- What platforms and products should I be using for new customers and new business for existing customers?
Have we identified all the practical, contractual and logistical issues (IT and systems changes, document production and printing, client communications)?
Have we thought through how we are going to approach the various sensitive and difficult discussions which may be required with our customers, people and counterparties?
Do we have the team and resources to implement FOFA?
The bottom line is that the breadth and complexity of key strategic and legal questions posed by FOFA means there is no time to waste.
Anthony James is principal, financial services advisory at PwC Management Consulting and Jim Boynton is a partner at King & Wood Mallesons.
