Don Trapnell

Synchron Director, Don Trapnell is calling the deal struck by the Government and Opposition last week, which will deliver relief on the Grandfathering provisions of the Future of Financial Advice (FoFA) legislation before the end of the year, a victory for advisers.

“The unintended consequence of FoFA that prevented advisers from moving between Licensees because they would lose grandfathered commissions has been removed and common sense has prevailed,” Mr Trapnell said. “Likewise, the grandfathered commissions of a register bought by an adviser will also be protected.”

Earlier last week, Mr Trapnell said legislation around Grandfathering, reinstated by the disallowance of the Future of Financial Advice (FoFA) Amendments, effectively shackled advisers to their existing licensees. At the time, Mr Trapnell said the disallowance had the potential to embody in legislation, a Hotel California clause, whereby advisers could check out of a licensee arrangement anytime they liked, but would never leave without suffering a significant financial penalty.

“The deal struck by the Government and the Opposition around Grandfathering yesterday is a good outcome and one that Synchron has lobbied strongly for,” he said.

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Mark Rantall

The Financial Planning Association of Australia (FPA) welcomes yesterday’s announcement that the Government and the Opposition have agreed to re-instate some elements of the FoFA reforms. In particular, the FPA is pleased to see the reintroduction of the grandfathering provision.

According to Mark Rantall, CEO of the FPA, the reintroduction of the grandfathering provision is particularly important to address unintended consequences from the disallowance of FoFA. It will ensure competition in the financial industry by enabling advisers to freely move licenses.

“Today’s announcement will ensure advisers can move licenses, whilst continuing to receive grandfathered remuneration. It is understood that this will also include the sale and purchase of advice businesses, something the FPA has and will continue to advocate for, in the drafting of the regulations.

“Our position has always been that FoFA should provide a better financial future to all Australians and we have advocated that the laws be beneficial for consumers, but also workable for financial planners.

“Grandfathering plays an important role in maintaining competition and its reintroduction is welcomed by the FPA.”

Additionally, amendments have also been made to:

· Training and education provisions

· Stamping fee provisions

· The accountants’ certificate renewal period

· The brokerage-related provisions

The Government has given notice of a proposed motion in the Senate. All other elements of the Government’s amendment agenda remain disallowed and the original FOFA legislation will stand.

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Don Trapnell

Hotel California-type legislation around Grandfathering, reinstated by the disallowance of the Future of Financial Advice (FoFA) Amendments this week, means advisers are now shackled to their existing licensees, according to Synchron Director, Don Trapnell.

Mr Trapnell says the financial services industry, one of Australia’s largest employers, is now stuck in limbo. “We now have, embodied in legislation, the Hotel California clause, whereby advisers can check out of a licensee arrangement anytime they like, but can never leave without suffering a significant financial penalty – a penalty too severe for most of them to survive.”

The shackling of advisers to their existing licensees must be an unintended consequence of the disallowance, according to Mr Trapnell. “It’s inconceivable that the Labor Party intended to legitimize restraint of trade in this way when the FoFA reforms were first drafted,” he says. “We cannot think of any other industry in Australia that has been restrained in this way.”

If the Grandfathering amendments are not preserved Mr Trapnell argues that what is currently world-leading financial advice legislation will become second-rate. “A whole sector of Australian small business will be restricted in their ability to choose a means of distribution that is in line with their culture and their business model,” he says. “That’s in effect what one senator has done – undermined a competitive market in financial advice and in the process overturned Australia’s sense of fair play.”

Consumers are also likely to be worse off, according to Mr Trapnell. “Many advisers are currently looking to change licensees in the interests of their clients as they look towards new business models and a better cultural fit,” he says. “Following the disallowance, advisers will not be able to move to another licensee even if it would enable them to better service their clients, without suffering significant financial penalty. Even If advisers bite the bullet and change licensees anyway, they will then be forced to charge their clients an ongoing fee for service. This will be in addition to the expenses levied against the clients’ accounts by the fund manager. If that happens, clients will obviously be worse rather than better off.”

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Brad Fox

The Association of Financial Advisers (AFA) has issued a statement following the Future of Financial Advice (FoFA) disallowance motion announced in the Senate yesterday:

“We are disappointed at the actions that have taken place yesterday.

“We have particular concern over the blocking of amendments that resolve the issue of grandfathering. This will need to be reconsidered as this problem from the initial FoFA legislation has removed competition from the financial advice market to the detriment and concern of financial advice clients and their advisers. Both the Government and Opposition have previously acknowledged that the grandfathering problem needs to be fixed and we will be diligent in ensuring a resolution is found.

“In aggregate, those who will suffer most from this disallowance are the small-business financial advice practices and their clients. Ironically, this is where the majority of personal financial advice is provided in Australia. It is disappointing to see small business caught in the crossfire again.”

– AFA CEO Brad Fox

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Brad Fox

The Association of Financial Advisers (AFA) has expressed dismay at the latest claims made by Industry Super Australia (ISA) in its Commissions by Another Name report (the ISA Report) on the impact of the Future of Financial Advice (FoFA) Amendments, calling ISA’s assessment of financial advice sales incentives inaccurate and misleading.

“The ISA Report outlines nine ways that sales incentives have supposedly been brought back to financial advice,” says Brad Fox Chief Executive Officer of the AFA. “The assessment of incentives is erroneous, inaccurate and appears intentionally misleading. On such a critical issue, Australians are entitled to hear the facts, not a compilation of fairy tales from a vested interests group.”

Mr Fox says that throughout the FoFA and the FoFA Amendments debate, the ISA has made a number of claims, many of which have been inaccurate.

“The AFA is tired of inaccurate statements being propagated by the ISA in the market place,” he says. “It is an absolute fallacy that commissions and new sales incentives have been introduced for financial advisers by the FoFA Amendments. The ABC Fact Check team, for example, has expressed a very clear view about the inaccuracies of that argument. The recent announcement from ASIC calling for industry super advertisements to be amended adds further weight.”

The AFA presented an analysis of the ISA’s previous claims to the market on 26 March 2014. “We continue to stand by this position,” Mr Fox says. “We have also expressed our clear view that the term ‘financial adviser’ should not be used in connection with general advice. Financial advisers provide personal financial advice and commissions are not being reintroduced for financial advisers.”

Mr Fox says the AFA believes that the ISA’s deliberate and repeated use of the terms ‘financial adviser’ and ‘financial planner’ in their media releases, along with the publication of the ISA Report is potentially designed to misrepresent the benefits payable to financial advisers providing personal financial advice.  “We have said it before and we will say it again – our members, who are financial advisers providing personal financial advice, do not want a return of commissions for superannuation and investments and, just as importantly, the Amendments, do not allow it.”

Mr Fox says many of the claims within the ISA Report are based upon issues that are unrelated to the FoFA Amendments or are hypothetical and unrealistic. “Much of what the ISA has argued is simply impractical in reality as it asserts examples that are either uneconomical or are contrary to the basic rules of running a financial advice or financial services business. It is also important to appreciate that commission paying superannuation and investment products will no longer exist for financial advisers.”

Mr Fox says the ISA Report lacks integrity because it fails to explain which item of legislation/regulation enables the so-called ‘carve-outs’. “For example, what is the wholesale commission that ISA refers to and how is the payment of this benefit to financial advisers possible? It is simply fiction.”

“The ISA has sought to raise extreme scenarios for how conflicted payments could eventuate and fails to consider two important protections: Firstly, the anti-avoidance provisions and secondly, the additional powers that the Government is seeking to ensure that action can be taken against any financial services business or financial adviser who tries to get around the law.”

Mr Fox says the AFA is calling for the ISA to have its analysis independently verified. “In the meantime, the AFA is encouraging observers, commentators, the public and politicians to be very careful about accepting baseless claims on the impact of FoFA Amendments,” he says.

“The success of the financial advice profession is critically important for Australia. The ISA, over many years, has acted to discredit and damage the public perception of financial advice and financial advisers. What is required is for all parts of the financial services community to work together to ensure that consumer confidence and trust in financial advice is enhanced. We need to ensure that great advice is available for more Australians.”

The AFA has provided comment on specific claims made by the ISA below (Appendix A) and outlines why the claims that commissions and sales incentives have been brought back to financial advice are largely inaccurate.

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Brad Fox

The Association of Financial Advisers (AFA) yesterday presented to the Senate Economics Legislation Committee on the FoFA Amendments and expressed the need for the Amendments to be supported.

Attended by AFA CEO Brad Fox and National President Michael Nowak, the AFA spoke in support of their submission to the committee made 30 April 2014.

In the opening statement made by Mr Fox, the AFA acknowledged that they are broadly supportive of the reform process that has spanned the last five years, and went on to highlight that the true value of personal financial advice had been forgotten in the debate over the amendments.

Mr Fox said at its core, great financial advice is about people and their emotions.

“It’s about advising the nurse who has grown physically tired and mentally weary of caring for patients and is desperate to know when she can retire. It’s about advising the mother left to raise two young kids after losing her husband to cancer. It’s about advising the factory manager facing unemployment from the closure of his plant who is wondering how he will meet the mortgage payments and put food on the table for his family. It’s advising a family facing the heart breaking decision to move an aging parent into a care facility.

“Every day, Australians are facing life defining moments that require financial decision making and every day they turn to financial advisers to support them through these challenges,” he said.

Commenting on the hearing, Mr Fox said, “We were very pleased to have the opportunity to present on behalf of our members, and that together with the details in our submission, we have informed the legislators of the settings that we believe are appropriate to both protect consumers and enable the advice profession to meet Australia’s advice needs.”

In relation to the General Advice Exemption, the AFA made it clear that it does not support personal financial advisers accessing this exemption. “We see this applying to non-financial adviser staff providing general advice only on their employer’s products – typically in a bank setting. The exemption may need some fine-tuning but the intent is that this is not a return to commissions for advisers.”

The AFA also supported a resolution to Grandfathering citing competition and market competitiveness as having been restricted. The AFA also went to lengths to present some of the grandfathering issues being faced from a client perspective. “We think the debate has overlooked a number of common situations that could be detrimental to clients because of grandfathering restrictions,” Mr Fox said. “We need to see them resolved and this should be of highest priority.

The hearing gave the AFA the opportunity to demonstrate their relevance in representing the financial advice market through answers to questions from the committee.

“The AFA has numerous partner relationships with licensees that authorise around 50% of the advisers in Australia. Through regular forums with these groups the AFA is able to understand the effects and implications of each regulatory change on the provision of advice and use this knowledge to support the development of appropriate policy positions,” he said. “The relationships also provide a forum for the AFA to demonstrate leadership to these licensees and their advisers, particularly around growing professionalism in financial advice.”

Mr Fox said financial advice is still a relatively young, developing profession. “We are well on a journey to becoming a recognised profession but we are not there yet.  The culture around advice is changing, and it’s changing quickly, so the interaction we have with licensee leaders and advisers is critical to encouraging this journey to continue.”

The AFA also pointed out that the majority of their members own or work in privately owned small businesses and they need the certainty that will be achieved by the amendments proceeding. “All business thrives in an environment of certainty and we look forward to the committee’s report in mid June, and the governments final position being released soon thereafter, hopefully with sufficient support to see legislation and regulations finalised early in the new financial year.”

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Dante De Gori

Australia’s professional financial planners remain vigilant to key legislative changes, seeking to clarify the full requirements of both the Future of Financial Advice (FoFA) and Tax Agents Services Act (TASA).

This is the dominant observation derived from the first round of the Financial Planning Association (FPA)’s National Roadshows underway across the nation from April until June.

Three of the 34 scheduled Roadshows have taken place, with the recently-held Perth event reaching record attendee numbers as 300 advisers attended the full capacity event. There was also an overwhelming response in Tasmania where nearly 100 members attended. The FPA is expecting over 2,500 attendees nationally before the Roadshows wrap up in South East Melbourne on the 19 June.

Dante De Gori, General Manager of Policy and Conduct at the FPA, said that these record numbers are a clear indication that advisers are aware that they need to be prepared for the 1 July legislative deadlines and are seeking support towards this goal.

“The feedback from our ‘Bulletproof’ Roadshows in 2013 was that financial advisers wanted more information about TASA and FoFA and what was required of them in compliance terms.

“The aim of the current series of Roadshows is to not only update and educate planners, but also answer any questions or concerns they have regarding specific aspects of the regulation and how this will affect them,” Mr De Gori said.

Mr De Gori indicated that the majority of questions raised concern the specifics of what planners need to do to be ready for the 1 July, 2014 implementation date.

“With the TASA extension granted to financial planners last year, we had more time as a profession to prepare for its implementation and to ensure members were equipped and ultimately in a position to deliver the best outcomes for consumers,” Mr De Gori said.

In a new event format, the FPA has partnered with Platinum Asset Management to provide an update on the state of the global economy. Kerr Neilson, Platinum Asset Management’s co-founder and managing director, has been discussing current offshore investment opportunities with a focus on key economic themes and global companies.

Financial planners in Melbourne, Sydney, Brisbane, Darwin and several regional locations are still able to sign up to their local Roadshow. The events are free to attend. Each covers:

Capital city events will also include the presentation from Platinum Asset Management, detailing the behavioural challenges investors are facing as well as current global economic trends.

The events are also open to non-members and attendees will be given a ‘Guide to TASA’ to take away. This includes a collection of fact sheets with practical tips and guidance on planner obligations under the TASA regime. Event dates and registrations for the Roadshows can be found at www.fpa.asn.au/roadshow.

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Paul Tynan

Connect Financial Service Brokers (Connect) CEO Paul Tynan added this voice to the many that responded to the news that the Federal Government had decided to ‘pause’ the FoFA amendment process.  Like others in the industry, Tynan agreed that the legislation was far too important to rush and additional comment and scrutiny would ultimately be beneficial for all.

Commenting further on the Federal Government’s decision, Tynan believes that the FoFA reforms still require some changes and fine tuning to raise both consumer awareness and ensure that their (consumers) interests are safeguarded.

“It’s an unfortunate reality that the overabundance of special interest groups lobbying so intensely in the support of their specific sector, business or association is not helping the situation and regrettably many are putting their own interests far ahead of the industry and consumer,” said Paul Tynan.

A strong advocate for a sensible and balanced approach, Tynan continues to lament the plight of the financial adviser that suffered so much during the stalemate at the end of 2013 and who thought that at last the process was underway and advancing towards a reasonable outcome – must again endure another period of uncertainty.

Tynan believes that the general advice exemption from FoFA’s ban on conflicted remuneration will result in the reintroduction of commissions back into product – and if this does become a reality he recommends the introduction of a full disclosure regime (‘buyers beware’).

His solution is to ‘brand’ general advice as aligned advice – where the advice is given by a person who is aligned to a product.  For example bank employees, industry fund and Superfund employees.  The term personal advice would relate to non-aligned advice where the adviser charges a fee for service and owns the client rights.

An interesting fact in the FoFA debate is that both the banks and Industry Super Australia are in the same camp of general advice. The banks want to ‘incentivise’ their employees to sell products and ironically, ISA wants to restrict higher remuneration.

In Tynan’s opinion, the amended conflict of interest reforms are fair and wholeheartedly supports moving on as consumer rights are enshrined in common law, FoFA and professional standards and all financial advisers must act in the best interest of the client.

Furthermore, Tynan contends that the changes to assist institutions design remuneration structures are inherently wrong.  He has no doubt that it will inevitably create a conflict of interest between clients and adviser interest – so get rid of it!

“The need to move forward has never been so important or paramount.  I can only repeat that it is the financial advisers that continue to be the main casualties – especially those that have been unable to buy and sell businesses because of the grandfathering issue.  This too is having an effect on consumer confidence and the reputation of the sector as a whole.

“It’s time for the lobby groups to stop their campaigns of scaremongering and exaggeration and to put the interests of the consumer and industry first,” concluded Paul Tynan.

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Mark Rantall

Financial Planning Association of Australia (FPA) Chief Executive Mark Rantall says the ‘good faith’ decision to place on hold the introduction of regulatory amendments to FoFA legislation is a welcome initiative.

“FPA applauds Finance Minister Matthias Cormann for taking further time to properly investigate changes that would otherwise have been introduced as regulatory reform this week.

“FPA fundamentally supports the original intent of the Future of Financial Advice (FoFA) reforms based on sensible policy alignment, removal of unnecessary red tape and maintenance of consumer protection.

“We welcome the decision by Minister Cormann and look forward to continuing our constructive discussions to find practical solutions to these amendments,” he said.

Mr Rantall said the FPA has spoken in the past week on behalf of its members and the Australian public seeking to draw a clear line between product and advice.

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John Brogden

The Financial Services Council said the government’s decision to pause changes to the Future of Financial Advice (FoFA) regulations is prudent and sensible.

John Brogden, CEO of the Financial Services Council said: “There has been a lot of white noise and misinformation on what the proposed FoFA refinements mean for consumers.”

“The pause is timely and will allow the government and stakeholders to regroup and make submissions to the Senate Committee on amendments which will allow FoFA to do what it was always intended to do. That is, to improve the quality and quantity of financial advice and to make it accessible for all Australians,” Mr Brogden said.

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