(Pictured: Martin Codina)
A Tony Abbott victory on the weekend now means certain parts of the Future of Financial Advice reforms, which became compulsory on July 1 this year, are likely to be rolled back.
The new treasurer in waiting, Joe Hockey, has made clear that his government will remove the opt-in condition, i.e. the requirement of financial advisers to request their clients renew their advice arrangement every two years, if they are paying ongoing fees.
FoFA was a result of the Ripoll Inquiry into Financial Products and Services in Australia, following the collapse of Storm Financial. That original inquiry made 11 broad recommendations.
“Not one of those 11 recommendations was an opt-in or [suggested] anything like it need to be adopted,” Martin Codina, FSC director of policy and international markets, says.
The Financial Services Council (FSC) believes that the requirements to review clients every two years, should be left up to industry guidelines and best practice, rather than the law.
“We think it is necessary and sensible that the regime be refined to clean up, what in some instances, are oversights in the drafting, and areas where we think it can be improved,” Codina says.
The opt-in requirement is arguably one of the most contested components of the legislation and fierce lobbying brought the original proposed requirement down to two years, instead of every year. The Australian Securities and Investments Commission was also given the power to exempt advisors from this requirement if they are bound by an ASIC-approved code of conduct which achieves the same thing.
“The bits that are most contested are the bits that weren’t part of the original intention,” Codina says.
“FoFA became much bigger and much more complex than was ever envisaged by the regulators or the industry.”
One of FSC’s FoFA-related policy priorities during the next three years, is amending the best interest duty in order to provide certainty and a “genuine safe-harbour” for advice providers. FSC believes this will make the provision of advice more affordable and therefore more accessible.
“The area we are most focussed on is a workable best interest,” Codina says.
In the institutional market, the major implication of the change in Government is likely to be the further delay by two years of the gradual increase in the Superannuation Guarantee to 12 per cent. The current 9.25 per cent was scheduled to get to 12 per cent by 2018-19 under Labor but the Coalition indicated its further delay several months ago. Critics have suggested the Coalition might postpone further increases indefinitely.
A wild card for the whole industry is the Coalition’s promised financial services inquiry, details about which remain sketchy.