Top 5 policy issues: 2010
Financial planners will be closely watching the discussion and debate surrounding the Future of Financial Advice (FOFA) reforms.
1. The Future of Financial Advice reforms
The Future of Financial Advice (FOFA) reforms emerged as the primary and most discernible result of 2009’s Parliament Joint Committee of Inquiry into the financial advice industry, broadly known as the Ripoll Inquiry.
While the FOFA reforms are built around a very simple premise, it is proving difficult for the Government and the Treasury to translate them into a broadly acceptable legislative package.
The two big issues for financial planners flowing from the FOFA proposals are the development of a definitive translation of ‘fiduciary duty’ and how the so-called ‘opt-in’ provisions will work.
For the dealer groups, the big issue has been the future of volume rebates; while for the insurance industry a question-mark has continued to hang over whether commissions will be banned with respect to the sale of insurance products.
According to the discussion documents presented by Treasury officials around the country in the closing months of this year, these were the core objectives of the FOFA proposals:
- Ban on commissions, volume payments, etc;
- Ban of asset-based fees for geared products;
- New adviser charging regime;
- Introduction of a statutory fiduciary duty;
- Extension of Australia Securities and Investments Commission (ASIC) powers;
- Removal of Accountants’ Exemption and replacement;
- Extension of intra-fund/simple advice;
- More effective disclosure (FSGs); and
- Formation of Expert Advisory Panel to advise on professional standards, ethics etc.
With the majority of the FOFA changes not scheduled to be implemented before the middle of 2012, planners should brace for further discussion and debate.
2. The Cooper Review
When the Government kicked off the Cooper Review in early 2009, few planners could have imagined that its recommendations would ultimately have an impact on the way they do business.
However the terms of reference of the review served to combine with the vision of its chairman, former ASIC deputy chairman Jeremy Cooper, to deliver a series of recommendations impacting the advice industry.
Where the FOFA reforms appeared ambivalent with respect to the banning of commissions on insurance sales, the Cooper Review recommendations were clear-cut in advocating such a ban.
The Cooper panel similarly reinforced the need to ban commissions with respect to the provision of financial advice and, consistent with the recommendations of the FOFA reforms, argued for the extension of intra-fund advice.
Core to the Cooper Review’s recommendations was MySuper — a simple default super product that the new Assistant Treasurer, Bill Shorten, has argued should replace all default funds.
Shorten has yet to explain how MySuper would be implemented in the context of the modern award default fund arrangements, which have given some industry superannuation funds exclusivity of default fund coverage in some sectors.
3. Licensing of financial planners with respect to taxation advice
This emerged as an issue late in 2010 when the Assistant Treasurer Bill Shorten released an options paper: Regulation of Tax Agent Services provided by Financial Planners.
The paper presents two options:
- Bring tax agent services provided by financial planners permanently within the tax agent services regime and be regulated by the Tax Practitioners Board (TPB), but do so in a way that minimises any additional compliance burden.
- Investigate and implement what changes, if any, might be made to the Australian Financial Services Licensing regime or its enforcement to ensure financial planners offering tax agent services are regulated to the same standards imposed on tax agents.
It will come as no surprise to planners that tax professionals believe planners should be subject to the control of the TPB.
A formal position is expected to be announced before the middle of 2011.
4. The Henry Tax Review
A change of Prime Minister, followed by a Federal Election resulting in a very delicate Parliamentary balance of power, has put paid to a good deal of discussion about the contents of the Henry Taxation Review.
However, what the financial planning industry does know about the Henry Review is that the Government has chosen to defy its recommendation to increase the superannuation guarantee from 9 per cent to 12 per cent over a number of years — while embracing its recommendation not to make the provision of financial advice tax-deductible.
There seems little likelihood of further Henry Review recommendations being placed front and centre in 2011.
5. Strengthening the regulators
ASIC has found itself strengthened on a number of fronts in 2010 with respect to the operations of the Australian Securities Exchange and consumer credit licensing.
Anyone reading the Cooper Review and FOFA reforms would also note the recommendations that the regulator be further strengthened.
However as the year came to a close, ASIC found itself the subject of more criticism over its handling of the collapse of Storm Financial and a number of other issues.
