FOFA unknowns still a concern
The Future of Financial Advice reforms may have passed through the House of Representatives but there is plenty of unknown detail causing concern to the major associations - detail which will need to be worked through in conjunction with Treasury and the Australian Securities and Investments Commission.
ANZ general manager advice and distribution Paul Barrett said that as the industry moved from a law-making process to an execution stage, all eyes would be on ASIC as to how the regulator would interpret those laws, and how they would be enforced. He said this would bring with it a whole new level of uncertainty.
Financial Services Council (FSC) chief executive John Brogden said that although the legislation was effectively through Parliament, the FSC now needed to work closely with Treasury and ASIC to try to improve the legislation.
Brogden said the FSC was unhappy with clause G in the FOFA exposure draft pertaining to best interests duty. The clause requires a financial advisers either to conduct "a reasonable investigation into the financial products that might achieve the objectives and meet the needs of the client of which the provider is aware and [assess] the information gathered in the investigation", or to use the information resulting from a previous and similar investigation.
Brogden said the clause was too broad and contradicted other clauses in the best interests duty legislation. The FSC would also like to see a simple amendment to scaled advice provisions, such that the client can instruct the adviser as to the scope of the advice they were seeking. Brogden said it was critical, in order for the provision to work, that the scope of the advice was clearly outlined.
Matrix Planning Solutions managing director Rick Di Cristoforo said the industry needed clarity around opt-in and what would be an acceptable code of conduct to obviate opt-in. It also required guidance on business activity and conduct, and clarification of best interest duty and scalable advice - and how it can be delivered in a practical manner. The current obligation is to do a full fact-find, which doesn't sit well with scaled advice, he said.
However, Mercer's financial advice leader Jo-Anne Bloch said there would be no issue with the fact-find process, as a full fact-find would be clearly inappropriate in a scaled advice situation where the client's needs were simple. "The issue that needs to be confirmed is the extent to which the adviser can rely on a client's agreement as to the extent of scaled advice," she said.
Industry Super Network chief executive David Whiteley said he would have liked several areas of the reforms to be more rigorous. The ISN would have preferred a principles-based approach to the drafting of best interests duty; a total ban on personal risk commissions; and opt-in should have applied to all existing clients to allow them to review and reapprove conflicting payments.
The Financial Planning Association (FPA) and Association of Financial Advisers (AFA) continue to oppose opt-in in any form. FPA chief executive Mark Rantall and AFA chief executive Richard Klipin said each raised concerns as to what would be required under the additional fee disclosure measures.
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