No one should doubt the significance of last month’s Federal Court decision imposing a civil penalty of $1 million against Melbourne-based financial advice firm, NSG Services Pty Ltd for breaching its obligations under Future of Financial Advice (FOFA) laws.
If the intention was to send a clear message to the planning industry, which it clearly was, then the scale of the fine was certainly an attention-grabber and what needs to be understood is that the Australian Securities and Investments Commission (ASIC) has an agenda to pursue further such changes.
The ASIC deputy chairman, Peter Kell made clear the regulator’s intentions when he said the Federal Court decision made clear the serious consequences for financial services licensees in failing to comply with their FOFA obligations.
“ASIC will continue to pursue licensees who fail to do so,” he said.
The regulator’s intentions were further driven home by its release a day later of its business plans covering the next four years in which it outlined the pursuit of FOFA breaches as part of its ongoing work program.
It is against this background that both dealer groups and self-licensed planners need to take a long hard look at the regulatory structures which have evolved over the past half-decade, the manner in which they are being utilised by ASIC and the changes which are yet to come such as product intervention powers.
The bottom line is that, the new industry funding arrangements aside, it is becoming both more challenging and more expensive to operate a financial planning business and these challenges and costs are emerging at the same time as planners continue to adjust to FOFA-compliant remuneration structures and as life/risk advisers seek to adjust to the new Life Insurance Framework (LIF) remuneration regime.
On top of this must be added the reality of the new education and professionalism requirements being overseen by the Financial Adviser Standards and Ethics Authority (FASEA) and the regime which will surround the Australian Financial Complaints Authority (AFCA).
While it is too early to calculate how much cost the various changes have added to the financial planning industry, it seems entirely probable that it equates to as much as 20 per cent a year, at least some of which will need to be absorbed and much of which will need to be passed through to consumers.
The critics of the FOFA changes always argued that they would only serve to make obtaining financial advice more expensive. They have been proved only partly right. Much of the increased cost now attaching to financial advice is attributable to the changes which have occurred post-FOFA.
When the Treasurer, Scott Morrison, last month addressed a Financial Services Council (FSC) breakfast in Sydney he suggested the Government’s initiatives were aimed at protecting the best interests of consumers but he was clearly not referring to the underlying cost of advice.
The cost structures underpinning the delivery of financial advice have changed, and there is no turning back.
