Despite a year of unprecedented regulatory change ahead for the profession, there is light at the end of the regulatory change tunnel.
The last few years of financial planning regulatory change has been marked by confusion and uncertainty.
Two years on from the Royal Commission being called, we don’t yet know exactly what the recommendations will mean in practice. It’s also been over two years since FASEA commenced its work and four years since the Trowbridgereport, with the reality of the life insurance remuneration changes only just now emerging.
Plus, we had the Federal election and opposing proposals from each side of the political divide, creating further uncertainty.
It left many of us scrambling to understand and prepare for the potential eventualities and seriously questioning what financial planning would look like at the end of it all.
There is greater certainty ahead
Despite this, we are moving forward as a profession. This year at least offers light at the end of the regulatory change tunnel – not in terms of everything being implemented – but at least in knowing what the rules of the game will be for the foreseeable future.
FASEA has now set its standards. Many of us are making great progress to meet those standards. Plus we have certainty that the Royal Commission recommendations will be legislated this year.
Table 1: Financial Services Royal Commission Implementation Roadmap
For those of us in policy, compliance and advocacy roles, the next 12 months will be like living in a cyclone. The Government wants to show they have ticked all the boxes they committed to. And we, the FPA, will be advocating for the right outcomes for our clients and ensuring the sustainability of the financial planning profession.
We’re committed to supporting you around the changes to your financial planning process and practice that will result from this cyclone of legislative change.
Early conversations with Government and the Treasury Royal Commission Taskforce suggest the plan is to implement the recommendations as quickly, efficiently, and as close to the directions provided by Commissioner Hayne, as possible. That is likely to create a challenging environment for financial planners, considering how long it took to implement and bed down just the FOFA amendments.
Big decisions to make
Implementation challenges will cover advice process, services and business structure. As these laws are rolled out, you will have a number of big decisions to make over the coming year to ensure you comply.
The individual recommendations are not that daunting, possibly with the exception of the annual renewal and product authorisation process. But when combined they create significant challenges.
It’s going to be critical to understand the cost of providing advice, have a clear value proposition for your clients, and the administrative complexity in collecting fees from clients.
Take for example, the complexity of recommendations in relation to how you collect fees from your clients. This includes 2.1 (annual renewal and payment of advice fees – including product authorisations); 2.4 (ending grandfathered commissions); 3.2 (no deducting advice fees from MySuper products); and 3.3 (limitations on deducting advice fees from choice superannuation accounts), plus the life insurance framework commission limits and FASEA code of ethics standards.
Operating under the restrictions created by these laws, plus the annual renewal obligation, product fee collection authorisation and fee disclosure statement requirements, will potentially take collecting and disclosing fees for financial planners an administration nightmare at a whole new level.
When coupled with capital risks associated with recommendation 2.9 (requiring licensees to remediate fees to clients in the event of misconduct – i.e. failure to provide a service in your service agreement), it’s worth considering whether an ongoing fee model will be sustainable for your business, particularly without technology to automate this process.
Consistent responses and messages
The FPA is making these challenges clear in discussions with Treasury, the Government, the opposition and cross benches in the Senate. We are also working closely with the other financial planning professional associations and the broader financial services industry, to ensure consistent responses and messages.
However, while the Government has indicated it understands and is considering our concerns, it has promised to implement the Royal Commission recommendations as written and given the scrutiny, is intent on keeping this promise.
Discipline and information sharing
On a more positive note, there are recommendations that will be implemented relating to discipline and information sharing.
Many members complain about the minority of bad planners who give our profession a bad name by moving around from licensee to licensee. Thankfully, recommendations 2.7, 2.8, 2.9 and 7.2 will mean licensees will be responsible for ensuring bad apples are reported efficiently to the regulator.
Combined with recommendation 2.10 – a single disciplinary system for financial planning – identification of poor advice should be dealt with efficiently, rebuilding trust with the Australian public, regulators and Government.
Further, the creation of a single disciplinary system creates an opportunity for the new body to consolidate and create a consistent interpretation of the four Acts and seven regulators planners comply with. This could significantly reduce red tape and reduce the risk of compliance failures due to conflicting regulation.
Don’t be overwhelmed
My message is that, unlike many of the changes in the past decade, the coming changes are foreseeable. There is an opportunity to plan ahead and have your business ready.
Get involved with the FPA. The more case studies, data and feedback on the Royal Commission implementation consultations we get, the easier it is to make a case on why subtlety and trade-offs are needed in legislating these recommendations.
And reach out to your local federal member of Parliament individually and as FPA chapters, so we can give consistent messages about what the Royal Commission recommendations mean for your business and the clients you professionally serve.
Ben Marshan CFP® is FPA Head of Policy and Professional Standards.