As reported, Australia’s assistant treasurer, Arthur Sinodinos, is currently consulting with the country’s advisory industry on draft rules that would make it easier for advisers to receive commissions and other so-called “conflicted payments”, which were banned by the signing into law in 2011 of a package of regulations known as the Future of Financial Advice Act (FOFA).
Other proposed changes include the removal of an "opt-in" requirement that stipulates that financial advisers contact their clients every two years to renew their contracts.
Comments on the proposed changes are being accepted until Wednesday. The FOFA revision legislation is expected to be introduced into the Australian Parliament in March, where sources say passage could present a challenge, as the Government does not control the Senate, and the parties that do don't support it.
The provisions of FOFA became mandatory on 1 July, 2013, after a 12-month period during which they were optional. By one estimate Australia's financial services industry has spent some A$1bn ($900m, £550m) in gearing up to comply with the FOFA reforms.
Among those coming down on the side of the proposed changes has been the Financial Planning Association (FPA) of Australia, the country’s main professional body for financial advisers and wealth planners and an affiliate of the Denver-based, globally-active Financial Planning Standards Board.
The FPA has repeatedly stated its support for making changes to the FOFA legislation since last year.
However, Dante De Gori, general manager of policy and government relations at the organisation said, “we do not want to compromise on consumer protection” in the process of obtaining “a more efficient and practical” FOFA legislation.
"We are reviewing the drafting and providing feedback to Government in respect to some concerns we have with the unintended consequences and possible implications of the amendments,” De Gori added.
"Specifically we are looking closely at the changes to Conflicted Remuneration and the Best Interests Duty."
The Best Interests Duty obliges advisers to always act in the best interests of their clients when giving them advice. Critics of the plans to amend this requirement, including the FPA, are concerned that this could unnecessarily water down a useful element of consumer protection.
Brad Cooper, the head of BT Financial Services, a major Australian advisory company affiliated with the Sydney-based Westpac group, is another supporter of the proposed changes. He is described in tomorrow’s edition of The Australian as having “slamm[ed] critics who were predicting a Wolf of Wall Street environment if the government changes the legislation”.
“What’s been written in recent days has been unhelpful and a distraction from the central purpose of getting better financial advice to a wider range of people,” Cooper is quoted by the newspaper as saying.
"…Most of what Senator Sinodinos is trying to correct is either the result of loose drafting in the legislation, or is an imbalance that would discourage people from seeking general financial advice.
"The last thing Australia needs is an environment where the only people who seek advice are those who can afford personal advice.
"A worst-case scenario with FOFA as it was legislated is that organisations would retreat from providing general advice."
Separately, in a statement on its website, Industry Super Australia, which represents 16 superannuation funds, is reporting that it has obtained legal advice which suggests the proposed changes to the legislation may not be lawful, and could “leave the advice industry open to significant potential future litigation”.
“The advice, from law firm Arnold Bloch Leibler, concluded that if the more significant amendments were implemented via the Government making regulations, they risk being declared ‘invalid’ and ‘susceptible to challenge in the courts’”, the Industry Super Australia statement says.
The legal advice, the statement continues, “states, ‘a court declaration of invalidity would operate retrospectively… financial advisers who relied on the regulations could be found to have acted unlawfully.
“‘The regulations would therefore create significant uncertainty…and could well become the subject of protracted litigation between financial advisers and their clients.’”
Not a return ‘to bad old days’
The Australian article quotes financial services executives who argue that the proposed changes, in the words of one, do not constitute “an unwinding of FoFA or a return to the bad old days of conflicted remuneration and unclear alignment between adviser and client".
That executive, Rick DiCristoforo, chief executive of independent financial adviser Matrix Solutions, is quoted as adding that said that "contrary to some impressions, the principles of FoFA are still firmly in place" in the amendments.
The new Best Interest Test, which obliges planners to act in a client's best interest, DiCristoforo told The Australian, “has been struck to retain the core of what's intended, and one clause of seven has been removed to prevent a frenzy of court test cases”.
Elsewhere, it was being reported that the Australian Labor Party, which had been in power when the FOFA was approved and enacted, is threatening to block the efforts to weaken it.
Shadow treasurer Chris Bowen and Labor leader Bill Shorten were reported over the weekend by the Australian Financial Review as saying that they intend to "frustrate" the proposed FOFA changes in order to "protect consumers against the reintroduction of conflicts of interest".
As reported here in 2012, Australia's passage and implementation of its FOFA has been seen by some experts as part of a global trend by governments and regulators to respond to the global financial crisis of 2008. The crisis, in turn, some say, had its origins in an explosion in the international financial services industry over the previous decade which saw some quite complex financial products suddenly being made available to large numbers of investors, often without sufficient regulatory control or supervision.
Business-friendly platform
The push for rolling back certain elements of Australia's FOFA legislation comes from a campaign promise by the new Government to reduce the compliance costs and regulatory burden for the financial services industry, if it were elected.
If enacted, the proposed reforms would save A$90m in implementation costs and cut compliance costs by A$190m, the Government has said.
