With Parliament prorogued and the advice reform agenda incomplete, many in the financial services industry are left wondering ‘what now?’, writes Cecilia Storniolo.
Regardless of who wins the election and who is appointed Minister for Financial Services and Superannuation, there is still a raft of Future of Financial Advice (FOFA) and Tax Agents Services Act (TASA) matters to attend to before the Government of the day can call the advice reform agenda complete.
FOFA
The great ‘renovation’ of the advice industry was spearheaded by the Parliamentary Joint Committee on Corporations and Financial Services (PJC) inquiry into financial products and services in Australia during Prime Minister Rudd’s first term in office. This resulted in 11 recommendations.
The announcement of the Future of Financial Advice (FOFA) package of reforms in 2010 saw the Government support nine of the PJC’s recommendations and the addition of four others.
On the eve of the 2013 election, some of the recommendations are yet to see the light of day, while another that the Government did not support is continuing to gain traction:
Additional Government Proposal no. 2 sought an improvement and simplification of disclosure on the nature of financial services offered to investors – that is, a simplified Financial Services Guide (FSG).
A Treasury working group has had this as an agenda item since the end of 2011.
However, given the increase in FSG disclosure delivered by FOFA, it remains unclear if this reform measure will be delivered.
Additional Government Proposal no. 3 sought to consult on the appropriateness of the current criteria under which a client is classified retail or wholesale.
Treasury issued an Options Paper in February 2011 on this issue. There have been no further indications of the Government’s intent on this matter.
Considering the FOFA reforms apply to retail consumers, any amendments to the ‘retail client’ definition, now that FOFA has begun, will significantly impact all participants and will require further transition arrangements.
Interestingly, PJC recommendation 9, which was unsupported by the Government, is still gaining momentum.
This measure asked for the Australian Securities and Investments Commission (ASIC) to immediately begin consultation with the financial services industry on the establishment of an independent, industry-based professional standards board to oversee nomenclature and competency, and to construct standards for financial advisers. It sounds a lot like ASIC’s Self Regulatory Organisation.
Whilst the development of some of the key policy announcements of FOFA – such as changing the definition of retail client – remain uncertain and potentially unsupported by the industry, the industry is continuing to advocate for other regulations. Examples include:
- A best interest duty containing a true ‘safe harbour’ fall-back.
- Refining best interest duty to enable scalable advice.
- Streamlining the fee disclosure statement requirements.
- Amending the grandfathering provision so that an adviser’s book of business is grandfathered – as stated in then Minister Shorten’s second reading speech in Parliament.
- Delivering regulations which enable a balanced score card-style remuneration framework for employees.
- Amending the conflicted remuneration provisions to provide greater clarity for advice providers and manufacturers – for example, by explicitly exempting general and risk insurance and flat dollar shelf-space fees, and explicitly allowing an advice service fee to be collected from a third party and paid via the licensee.
- Amending the conflicted remuneration provisions to ensure a level playing field for non-default superannuation members who seek and receive advice about their insurance needs through a group insurance ‘master policy’.
- Enabling the payment of ‘intra-fund’ advice to third party advice providers without falling foul of conflicted remuneration; and
- Making ‘intra-fund’ advice fees transparent.
TASA
The industry welcomed the 12-month extension to the commencement of TASA for financial advice providers to enable the industry to work with the Government and the Tax Practitioners Board to implement a workable regime.
Whilst the legislation received Royal Assent on 29 June 2013, there are significant components of the regime which remain incomplete.
As with FOFA, regardless of who succeeds on 7 September, we will be calling on the Government of the day to address TASA’s shortfalls and to finalise the regime to give the industry appropriate time to transition so that consumers are not disadvantaged.
Key items the prospective Government will need to address include:
- Amending TASA so that its applicability is clear for consumers and providers alike by clarifying its scope and where necessary providing explicit exemptions – such as in the case of general advice provided by any super fund
- Delivering regulations to establish the registration requirements for tax (financial) advisers, and
- Streamlining the ASIC and Tax Practitioners Board competency requirements to reduce duplication and deliver efficiencies.
While the industry waits to see how these impending changes will transpire, it is clear that whoever comes to Government on 7 September will need to take these issues on board to complete the advice reforms.
Cecilia Storniolo is senior policy manager (advice) at the Financial Services Council.
