John Brogden

Disallowance of the Future of Financial Advice regulations will cause havoc for consumers and financial advice providers, the Financial Services Council said yesterday.

John Brogden, FSC CEO said: “This disallowance motion will create a legal quagmire that will lead to disruption and unnecessary costs and will reduce affordability and accessibility of financial advice.”

“Overturning the FoFA regulations at the eleventh hour will do more harm than good,” Mr Brogden said.

“The market impacts of an immediate disallowance would create a legal quagmire, millions of dollars in business disruption costs and reduce affordability and accessibility of financial advice to Australians.

“We are calling on the Senate to vote against the disallowance motion today to allow Parliament and the industry time to consider the proposals and to address any concerns.”

“The industry has been working under the current FoFA arrangements since 1 July. To turn around and just throw them out is irresponsible.”

“The market impacts of disallowance have not been considered by the Senate.”

The Government’s regulatory impact statement estimates that FoFA in its current form is achieving ongoing compliance cost savings of around $191 million per year, as well as once-off implementation cost savings of around $88 million.

Mr Brogden also said: “The laws FoFA we have in place today have the strongest possible consumer protections. These have never been watered down.”

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Brad Fox

AFA CEO Brad Fox says it is time for financial services commentators to take the blinkers off and focus on what is really good for consumers.

“It is time for the misleading and vested interest rhetoric around amendments to the Future of Financial Advice reforms to be corrected in favour of a real and demonstrated commitment to an outcome that will help more Australians enjoy a substantially self-funded retirement,” he said.

Mr Fox said that Australia has to face the stark reality of a rapidly ageing population looking down the barrel of retirement. “Faced with this emotional, stressful transition from building wealth to wondering how long it will last, nearly all retirees seek professional financial advice,” he said. “They want that advice to be personal, they need it to be affordable and they want to have a relationship with an adviser who will be there for them throughout their retirement. They don’t want advice from a call centre operator over the phone.”

Mr Fox said that reports that amendments to FoFA reforms mean the legislation is being ‘ripped up’ are ridiculous. “FoFA is being enhanced, not watered down,” he said. “The Best Interests Duty remains substantially the same and the core elements are still there – in particular the ban on commissions on investments and superannuation. The amendments improve FoFA because they provide greater certainty and clarity; they are good for consumers.”

Mr Fox called for an end to what he said is a squabble over Australia’s retirement pool. “We are calling on all industry participants to step up and focus on the people who really own the money – the mums and dads of Australia,” he said. “It’s an absolute fact that we have an ageing population. It’s an absolute fact that we are about to experience the greatest intergenerational wealth transfer of all time. Baby boomers are retiring in their thousands. They do deserve protection and they will have it – under a Best Interests Duty that is both pragmatic and effective – if the FoFA amendments are passed.”

If the FoFA amendments are not passed, he said the courts will ultimately decide what the ‘catch-all’ provision (Part g) of the Best Interests Duty means. “This needs to be fixed now and it needs to be fixed by the FoFA amendments.”

Mr Fox also said that clients and advisers have been portrayed as being on opposing teams. “In fact, they are on the same side – clients can walk away from an adviser any day of the week. If they are not satisfied they can leave. As a professional community, we put a lot of energy into making sure that clients are at the heart of everything we do and the media portrayal that advisers and clients are on opposite sides of this debate is rubbish. They are inextricably linked,” he said.

If the law makes it too hard for advisers to do their job Mr Fox said Australia risks a whole generation of people missing out on advice and the value that it delivers. “If the red tape is too hard to cut through, people will move into retirement without the personal financial advice they need in order to secure a substantially self-funded lifestyle in retirement. That’s what’s at stake. The FoFA amendments need to be passed.

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Mark Rantall

Rhetoric and unnecessary scare mongering are clouding the facts about proposed amendments to the best interest duty component of the Future of Financial Advice (FoFA) legislation.

“Australian consumers have nothing to fear from proposed changes to remove sub-section (g) (section 961(B)(2) (g) of FoFA legislation,” says Financial Planning Association of Australia CEO Mark Rantall.

“We are witnessing an extraordinary effort by product providers and those who represent them to build a political position – based on flimsy arguments – in defence of a redundant section of FoFA pertaining to the best interests duty.

“In this case the facts really do speak for themselves. Consumers have nothing to fear from the proposed amendments. We reiterate the facts here, in chronological order and on the record, for all to see,” Mr Rantall said.

The facts about sub-section (g):

The seven safe harbour steps are covered in the first obligation to act in the best interests of the client in s961B. It should also be remembered that s961B(1) states that “the financial planner must act in the best interests of the client in relation to the advice.”

Then s961B(2) provides the seven safe harbour steps as a way to help the financial planner discharge this duty. The purpose of this was to provide clarity and certainty about what a financial planner must do to meet their obligations.

The obligation does not end with the seven safe harbour steps. The financial planner must also provide advice that is appropriate, warn the client if the advice is based on incomplete or inaccurate information and finally, they must prioritise the client’s interests.

The obligation to warn clients and provide advice that is appropriate was present before FoFA, however the obligation to act in the best interest of the client and to prioritise the client’s interests are new and are not being repealed.

“The number one principle in that Code has always been that FPA members have an obligation to place the client’s interests first,” Mr Rantall concluded.

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A balanced approach to FoFA legislation is required: Connect

Connect Financial Service Brokers (Connect) CEO Paul Tynan says that through all the commentary and opinions currently being expressed by industry in relation to the Federal Government’s proposed changes to the FoFA legislation, what is really needed is a balanced approach and outcome.

When reflecting on the goals of all stakeholders, Paul Tynan notes that their objectives are basically the same with the end goal being a strong, viable, profitable industry to professionally service and support the financial, investment, retirement and protection needs of Australian consumers.

In order for this to be attained, Tynan advocates the need for a balanced approach and end result in order to ensure that the interests and requirements of all stakeholders are addressed in terms of:

• a balance of robust regulations without over regulation and administrative burden
• a balance between cost, remuneration and consumer protection
• a balance between large institutions and boutique providers
• a balance between vertical integration and independent advice
• a balance between the interest of all parties and the ultimate objective of providing professional advice to consumers.

“Everyone has endorsed the new world of FoFA and the intended outcome of a fee transparent client focused infrastructure with a professional industry delivering advice,” said Paul Tynan.

“In my opinion, it’s not Government that’s the cause of the problems and complaints that have been directed towards FoFA but the overabundance of self interest groups lobbying intensely to ensure that the interests of their particular sector, company or association are met – even if above those of the industry or consumer”.

In the end, there’s no point pointing the finger of blame at Government and the legislators when the other fingers on the accusing hand are pointing directly back at the real cause and root of all the problems – the industry itself!

Paul Tynan continued, “I am not naive and it’s there for all to see why all the special interest groups comprising institutions, advisers, associations, fund managers, etc have been so active through their lobbyists and lobbying activities – because Australia has a pool of retirement savings of $1.6+ Trillion in assets and has the fourth largest fund management industry in the world.  So there’s a lot at stake.”

With respect to the provision of advice, Paul Tynan offers a very simple solution to enhance the proposed FoFA legislation so it is unmistakably transparent for all consumers that the advice they are receiving is either aligned or non-aligned.

Aligned advice is where the adviser is in a salaried position and licensed via a bank, industry fund etc.  There is a restriction of ownership of client and buyer of last resort (BOLR) terms in place.

Non-aligned advice is where the adviser is a self-employed business owner and there is no restriction with respect to client ownership and if the adviser wishes to leave a licensee the clients are clearly transferable.

Paul Tynan concluded, “As an industry we should all be supporting the enhancement of the proposed changes and make FoFA ‘workable’ and more transparent for Australian consumers”.

“Currently nearly 70% of consumers don’t or cannot afford advice and if over regulation and ‘red tape’ drives up ‘costs’, comprehensive personalised advice will only be available to individuals who can afford it.  The rest will have to rely on call centres and hope that an off the shelf / one size fits all solution will provide them a protection or wealth creation outcome to meet their needs.”

“It’s time to take a balanced approach that ensures the needs of clients are paramount and met.

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Mark Rantall

The Financial Planning Association (FPA) has welcomed the timely release of the draft amendments to FoFA for a three week period of consultation, as announced today by Assistant Treasurer, Arthur Sinodinos.

FPA CEO Mark Rantall said: “We are pleased that the Government has progressed with its promised changes to ensure a more workable FoFA framework for financial planners and their clients. We will now carefully consider the draft amendments to ensure they will reduce compliance costs, work in a practical way for planners and their clients and do not introduce any unintended negative consequences.

“The FPA has long advocated for a more sensible, workable and practical FoFA legislation. We are pleased that the government has therefore committed to consulting on the legal amendments necessary to fix these issues as a matter of urgency.”

Mr Rantall went on to say the FPA has consistently spoken out against the need for opt-in and a retrospective Fee Disclosure Statement. It has also backed changes to the grandfathering regulations to remove the unintended market competition inequities and restrictions of trade issues for financial planners.

“We believe that opt-in and the retrospective Fee Disclosure Statements are onerous policies that will not benefit Australians seeking quality financial advice. We previously called for the removal of these policies and support the draft amendments that support this removal.”

The draft amendments as put forward by the Assistant Treasurer will:

• Remove the opt-in requirement;
• Amend the fee disclosure regime to operate only prospectively;
• Remove section 961B(2)(g) (the ‘catch-all’ provision) from the best interests duty;
• Specifically provide for scaled advice;
• Exempt general advice from conflicted remuneration; and
• Fix the grandfathering provisions to allow financial planners to move between licensees while retaining access to grandfathered benefits.

“The FPA has previously pledged to continue its ongoing efforts that enable financial planners to efficiently and effectively deliver on the fundamental, consumer-centric aims of FoFA and this is the next step in the process. The FPA will be looking to ensure specifically that the Fee Disclosure Statement process is streamlined for the benefit of planners and the end consumer alike,” Mr Rantall said.

The Government’s consultation process will now be open for a period of three weeks, with submissions closing on 19 February 2014. The FPA will be providing a submission to this process and will continue liaising with Government and Treasury to ensure a positive outcome for planners and consumers.

Following the consultation process, the Government expects regulations will be made at the end of March 2014. A Bill is then expected to be introduced into Parliament in the 2014 autumn sitting period with passage scheduled for the winter sitting period.

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Brad Fox

The Association of Financial Advisers (AFA) welcomes the release yesterday of draft amendments to the Future of Financial Advice (FOFA) legislation for public consultation.

AFA CEO, Brad Fox said, “We are very pleased to receive the drafts in the timeframes that the Minister has previously outlined. We look forward to working through the detail, consulting with our members and our FoFA Implementation Working Group, and then making a submission to the Government.”

Mr Fox said that at first glance it appears that these changes are in line with the intent expressed by the Minister and retain appropriate consumer protection as well as enhancements that reduce regulatory overreach in the delivery of financial advice.

“We will make further comment after a comprehensive review has been undertaken,” he said.

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