In an unexpected U-turn, Australian policy-makers have decided to reject the repealing of the just recently deployed Future of Financial Advice (FOFA) rules applying to all Australian financial advisers, intended to protect retail investors in the advisory and discretionary broking space.
Parliamentary debate came to a crescendo in an a rarely seen late evening sitting, where a 32-30 vote ensured currently active government changes would be scrapped. The vote effectively means financial planners will have to contact their customers and obtain permission/authorisation for trading activity to be legitimate.
The incumbent Liberal government was aiming to repeal the FOFA regulations and make financial advisory services more ‘laissez-faire’, or in other words, operate under less bureaucracy. However, such intentions have attracted unscrupulous market operators seeking to take advantage of looser disclosure measures.
Regardless of the political reasoning behind this most economic of issues, the fact remains that the advisory industry in Australia now faces a scramble to comply with the roundabout turn embarked upon by MPs.
Crossbench Senators Jacqui Lambie and Ricky Muir have removed their previous support for the federal government’s wind back of FOFA reforms first introduced by the Labor Party. That has sparked widespread praise from consumer advocates but also concerns from some in the sector that vast swaths of the industry could effectively be operating outside the law.
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The decision has divided public opinion in the financial services community, with brokers and advisers feeling hard done by and retail investors broadly welcoming the move.
Ms. Lambie was one of the biggest supporters of FOFA guidelines, “I will not allow the Liberal Party and their supporters to wind back consumer protection at a time when the financial advice industry has been shown to act in a scandalous manner.”
Financial Services Council (FSC) Chief Executive, John Brodgen, criticised the change as it would cause unnecessary uncertainty, “The industry has been working under the current FOFA arrangements since July 1st. To turn around and just throw them out is irresponsible.” Adding, “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.”
If the government’s regulations are disallowed, previous legislation passed by the Gillard government would come into force. These laws include a requirement for clients who signed up after July 2013 to ‘opt-in’ every two years, a broader duty for advisers to act in the client’s best interests and tougher restrictions on referral/affiliate payments from financial intermediaries to advisors.
In addition, advisers would have to provide retrospective fee disclosure statements to all clients who initiated a broker-client relationship before July 2013.
In an emergency statement published in the late evening hours , the Australian Securities and Investments Commission (ASIC) acknowledged the disallowance by stating, “ASIC will take a practical and measured approach to administering the law as it now stands following the disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014.”
In an ominous statement the regulator added, “…many Australian financial services (AFS) licensees will now need to make systems changes. We will work with Australian financial services licensees, taking a facilitative approach until 1st of July, 2015.”