Major dealer group Professional Investment Services (PIS) has warned it believes the Government’s decision to introduce its Future of Financial Advice (FOFA) legislation in tranches is dangerous given the inter-related nature of key elements of the bills.
In a submission filed with the Parliamentary Joint Committee (PJC) reviewing the FOFA legislation, PIS group managing director Grahame Evans has gone to the heart of the financial planning industry’s concerns about the Government’s approach, particularly opt-in, and the limited amount of time the industry will have to transition into the new arrangements.
"We are concerned that a number of the key measures within the proposed regulation will not achieve the objectives stated above because of the following key issues:
- insufficient time is being provided for implementation (1 July 2012)
- we are imposing new contractual obligations between a financial adviser and client where existing contractual arrangements are already in place (requiring annual fee disclosure statement for existing clients)
- the Government is proposing to take the unusual step of regulating the financial relationships between private contracting parties such as the client and financial adviser. We are not aware of any other industry or profession where the government mandates that clients opt-in to the ongoing service delivery provided by an adviser or other service provider (whether that be with lawyers, accountants, phone providers, health insurance providers or any ongoing subscription providers).
- the measures will adversely impact consumers and the ‘red tape’ that has prevented low-cost, good quality financial advice being delivered to millions of Australians will in fact be increased rather than be removed."
The PIS submission welcomes the PJC’s review of the legislation and urges that the committee "consider the issues within the context of the complete FoFA package and the existing financial services framework".
"We find it extraordinary that the FoFA package has been delivered in separate tranches when a number of the key issues are fundamentally interrelated," the PIS submission said.
"This is extremely dangerous considering that the package of reforms is collectively designed to deal with conflicted remuneration, quality of advice and foster greater access to financial advice."
PIS outlined its approach to the legislation as being:
Opt-In: No support. A number of key regulatory changes to be introduced, such as the best interest duty, removal of conflicted remuneration and other benefits, together with enhanced ASIC powers will significantly enhance consumer protection.
Clients already have the capacity to opt-out and we do not believe that opt-in benefits the consumer or is necessary, but just adds another layer of bureaucracy to the process and an unacceptable level of risk to consumers through loss of financial advice.
Fee Disclosure Requirement: Somewhat support. The best interests duty, removal of conflicted remuneration, together with the existing comprehensive disclosure framework already in place, sufficiently protects consumers and discloses to clients what fees are charged.
A further fee disclosure imposition is merely administrative replication with increasing compliance burden, driving up the cost of financial advice unnecessarily and without tangible benefit to the client. This is in opposition to FOFA’s objectives of removing red tape and making financial advice more affordable.
Retrospective legislation: No support. We do not support fee disclosure requirement or the anti-avoidance provision from applying on a retrospective basis. Retrospective legislation should only be used in exceptional circumstances and if applied would impinge on existing rights and obligations as well as jeopardising legitimate existing arrangements.
Commencement Date: We support a postponement of the commencement date to no less than 12 months after the legislation receives royal assent to ensure that the industry has sufficient time to make the necessary changes and meet its legal and regulatory obligations.
