From July 1, we have been operating under the new FOFA guidelines implemented by the Labour government. All of a sudden we have a new government with its own ideas of how the FOFA regime should work, and for those of us in the financial planning industry, this could mean some considerable changes.
For those who may not be aware, the proposed changes are:
- the removal of Opt-in;
- the simplification of annual Fee Disclosure Statements (FDS);
- improving the Best Interest Duty;
- to provide certainty around scaled advice; and
- refining the ban on commissions on risk inside superannuation.
Of these, probably the first three have generated the most discussion in the industry. However, given that Opt-in notices aren’t due until July 2015, we probably don’t need to concern ourselves too much with this one just yet, leaving FDS and Best Interest Duty as the most topical at the moment.
Like it or not, and regardless of any changes that may be in the wind, July’s FDS should have all been distributed to clients by the end of August and August statements should be in the process now. To not comply is a breach of the current legislation and that doesn’t bode well for business.
Best Interest Duty would have to be the largest shift in the thinking for a number of financial planners and advisers. Not that they don’t already act in the best interest of their clients, but the implications based on the legislation itself and how it affects the use of approved product lists (APL) and dealer group restrictions on investments and/or categories of investments, need to be considered.
The trouble is, the Coalition hasn’t given us a lot to work with in its statement, ‘improving the Best Interest Duty’. With the other key points, we have been given some sort of direction as to what they are thinking.
As the legislation stands, my concern is that planners might get trapped between the regulations and their dealer groups and that in trying to comply with one, might breach the guidelines of the other.
As an example, I had a discussion the other day with a planner who told me his dealer group had restricted the use of international investments. At first I assumed he meant that the APL was reduced to a select few international funds or ETFs, but no, it was a full restriction on recommending international investments.
Now I’m not saying that the dealer group is right or wrong with this type of direction and perhaps they have a very good reason for implementing this directive, however, I do wonder if this will create a conflict with the ‘Best Interest Duty’ regulations.
It seems that some dealer groups and certainly a number of financial planners and advisers have not thought through the implications that APLs and other restrictions will place on complying with FOFAs Best Interest Duty. I believe that each of us needs to explore how we will be affected under the current legislation, regardless of any changes that might be in the wind.
Financial planners and dealer groups then need to discuss together how best to ensure compliance with the current FOFA regulations under the new political regime.
But does this mean we stop doing what we have been doing since July 1? Absolutely not!
While we may be aware of the Coalition’s planned amendments, at this stage nothing changes!
David is the founder and principal at SIRA Group. He has twenty five years’ experience in the financial services industry, and is an expert in tax and superannuation strategies.
