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Connexus : Issue 39
www.abacus.org.au 23 Shor ten says the gover nment wants to encourage early movers to take advantage of the reforms from 1 July 2012, but the “drop dead date” for mandator y compliance is 1 July 2013. Passage of the refor ms was secured by the gover nment by agreeing with independent MP Rob Oakeshott to provide an alter native to the ‘opt-in’ proposal affecting financial planners. Oakeshott argued it was important that consumers had con fidence in seeking financial advice but it was equally important that small business was not burdened by over-regulation. “ The ‘opt-in’ provisions, whereby advisers must seek permission to continue a business relationship, will not apply to planners and advisers who operate under an industry code of practice. The industry will have until 2015 to develop an ASIC-approved code of practice – providing relief from compliance costs for industry and strong consumer protections for clients,” Oakeshott says. The Coalition’s perspective The Coalition says it will “fix Labor’s FoFA mess” should it win the next election. Opposition spokesman for financial services Mathias Cormann has described the FoFA legislation as “regulator y overreach”. He says the legislation had “failed to strike the right balance between appropriate levels of consumer protection and the need to ensure the ongoing availability, accessibility and affordability of high-quality financial advice”. The Coalition would change FoFA by removing the ‘opt-in’ provision and by improving the ‘best interests’ duty. The limited carve-out from the best interests duty for ADI staff advising on basic banking products has been clarified by the addition of a note to the relevant provision saying that a “client’s relevant circumstances may be broad or narrow [and] that a client may seek scaled advice and that the inquiries made by the provider will be tailored to the advice sought”. The abacus view Abacus considers this to be a welcome enhancement because ADI staff advising on their own ADI’s basic banking products will necessarily be giving “scaled advice”. Shorten says: “Our amendments provide more certainty with the provision of scaled advice, including protection around the full fact find. This is not enough for some in the industry but, at some point, I believe that one has to stop quibbling about the words and just simply em brace change”. The carve-out from the ban on conflicted remuneration for ADI staff advising on basic banking products will operate more effectively with the introduction of regulations clarifying that such staff can also receive incentive payments in relation to selling general insurance. There is still some uncertainty around the treatment of consumer credit insurance (CCI), despite general insurance and life insurance (outside superannuation) being car ved out from the ban on conflicted remuneration. Treasury officials have indicated they will provide clarification about the status of CCI in relation to the ban on conflicted remuneration. ASIC will provide regulator y guidance on key elements of the FoFA reforms, including: • best interests duty • scaled advice • conflicted remuneration • ASIC licensing and banning powers. ASIC is already consulting with stakeholders to gather information about ADI ‘balanced scorecard’ remuneration frameworks for its regulatory guidance on applying the ban on conflicted remuneration. This is relevant for ADIs whose staff have an element of their remuneration related to the sale of financial products other than basic banking products, general insurance and life insurance. The FoFA legislation’s Explanator y Memorandum says the ban on conflicted remuneration “al lows the payment of salaries to employee advisers [but] any propor tion of that employee’s salar y that could reasonably be expected to influence advice is conflicted remuneration”. “An important consideration in these circumstances would be the extent to which any volume-based proportion of a salar y package is presumed to be conflicted remuneration [and] whether the recipient could prove that it could not reasonably be expected to influence advice,” the Explanator y Memorandum says. luke lawler is senior manager public affairs at Abacus. By building trust and confidence in financial advice, FoFA is a growth strategy for the industry. ASIC RESEARCh ShoWS ThAT onLy 20To 40PER CEnT oF AuSTRALIA’S ADuLT PoPuLATIon uSE oR hAvE uSED A FInAnCIAL ADvISER