Talking the walk: a Christmas gift for financial planners


In the lead up to Christmas, the Assistant Treasurer, Senator Arthur Sinodinos, announced a number of proposed refinements to the financial services laws.

His proposed refinements were clear, generally well received and explicitly designed to deliver affordable and accessible financial advice (ironically by changing the measures introduced by the previous government to deliver affordable and accessible financial advice).

While the proposed refinements are being celebrated as a significant win for advisers, it’s important to acknowledge the most important aspect of the announcement - not the removal of the ‘opt in’ requirement nor the new date for the application of Fee Disclosure Statements - but the fact that the announcement is only a statement of intent; no draft legislation exists and no draft regulations have been published.

While it is unlikely that the Government will resile from these proposals, it is important to appreciate that they will not be introduced until, at the earliest, the autumn sitting of parliament. One should also appreciate that these refinements will be only one component of an ambitious legislative program. In reality, while these changes are very important to industry Insiders there may be other issues that demand the Government’s more immediate attention.

With these qualifications in mind, and while it's inarguable that the proposed changes will reduce complexity and cost, I do wonder whether they will really “reduce annual compliance burdens by an average of approximately $190 million per year”.

Opt In

A few years ago, on a visit to Canberra as part of an Association delegation, we discussed the nonsensically bureaucratic requirement for clients to continue to “opt in” to an existing and ongoing arrangement with their adviser. Instead, we proposed a more clearly expressed annual reminder to clients of their existing right to “opt out” of their ongoing arrangement with their adviser coupled with more effective disclosure of the services provided and their cost. Despite our efforts, there was no movement on the Government’s position on ‘opt in” despite the significant burden it imposed on advisers.

Their position was curious. If the intent of the requirement was to ensure that consumers did not continue to pay for services they were not receiving then reminding consumers of their right to “opt out”, combined with a clear disclosure of the ongoing costs of that arrangement, should have been sufficient.

I thought the Government’s position was premised on a very negative view of the advice profession; in reality, good advisers embrace transparency and encourage their clients to become more actively engaged in the management of their financial affairs. For advice professionals, their client’s understanding and informed consent is the foundation of the advice relationship. This is not a conversion on the road to Damascus but a longstanding and fundamental commitment.The Financial Planning Association has led on this issue for such a long time that few professional advisers would have been troubled by increased disclosure obligations.

But it was not to be.

Thankfully, the new Government seems to have enough confidence in the advice profession to abandon this ineffective and highly paternalistic protection offered by the “opt in” provisions.

Annual Fee Disclosure

Many advisers, and many of my clients, had little or no objection to the idea or intent of the Fee Disclosure Statements; but they struggled with their inability to obtain, and consistently present, historical data from a variety of often conflicting, inconsistent and contradictory data sources.

Thankfully, the Government propose to refine the requirements so that FDS will only apply to clients “acquired” from 1 July 2013.

Catch all provisions and safe harbours

Advisers are pre-emptively celebrating the removal of the “catch all” provision (961B(2)(g)) of the Corporations Act. For those of you unfamiliar with it, this provision required advisers to take “any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interest of the client”.

For some time I’ve been arguing that the “catch all” provision invalidated all the preceding steps of the “safe harbour” steps, so of course I think advisers should celebrate its planned demise. However, the removal of the “catch all” is in some respects a wasted opportunity; I’d prefer 961B(2) to be entirely removed so that advisers can focus on their core professional obligation – to act in the best interests of their clients – rather than agonising over checklists of procedural steps designed to minimise their liability.

Personally, I think prescribed safe harbour steps trivialise the professionalism of advisers and drag them down to a minimum standards; I’d prefer the law to recognise and value adviser’s experience and competence and allow them the freedom to decide how they best comply with their best interests duty.

Valuing older arrangements

Every period of regulatory reform in financial services has driven fragmentation and consolidation; in Distribution, this has led to bigger institutional advice groups, more boutique licensees and a cannibalised middle ground.

FOFA would, and should, have driven the same outcomes particularly given the conflicted remuneration provisions and shift in liability from Licensees to Authorised Representatives. But it didn’t. It didn’t because fragmentation and redistribution pressures were effectively restrained by regulatory uncertainty and advisers’ fears that grandfathered benefits would be lost if the adviser changed licensees. So the reforms that should have created a dynamic, flexible and responsive advice industry had the reverse effect and caused the advice industry to become even more institutionalised and ossified.

To the great relief of many advisers – particularly those that recognise the considerable advantages of holding their own AFSL - the government has recognised the anti-competitive consequence of the existing grandfathering provisions and will make changes to these provisions in order to facilitate the transfer of advisers between licensees. 


Prior to the commencement of FOFA some advisers feared that, on 1 July 2013, the Minister would “cry havoc and let slip the dogs of [law]”.

It didn’t happen and, in fact, ASIC announced a mature and facilitative approach to address industry concerns. Where participants made, or were making, genuine attempts to comply with the new requirements ASIC indicated that they would reasonably and appropriately respond to most issues.

They reserved their rights, of course, to take enforcement in response to deliberate breaches or unreasonable failures but their facilitative approach reassured many advisers and licensees struggling to understand and implement regulatory change.

In the wake of the Senator’s media release, ASIC have announced a similarly facilitative approach. ASIC have acknowledged the Government’s position on Fee Disclosure Statements and confirmed that they will not take action for breaches of s962S in relation to clients acquired before 1 July 2013.

What’s left in the stocking?

An attachment to the Senator’s media release (reproduced in full below) outlines the breadth of the Government’s financial services reforms.  

While positioned as refinements that are broadly supportive of the original intent of FOFA, the program includes a number or changes that one might suggest effectively roll back key elements of the FOFA reforms.

In fact, the full impact of these proposals (if enacted) will not be known for some time, but there will be criticism that they are reactionary responses to necessary reforms that undermine the opportunity for financial advisers to build an advice profession. This is not accurate. The opportunity to build a respected advice profession (one that is focussed on the best interests of the client and largely free of conflict) still exists but it won’t be, and never would have been, achieved by legislation alone – professionalism requires Advisers and their associations to demonstrate strategic leadership, restraint and effective self-regulation. 

In reality, the best way to avoid future legislative reforms of financial services is for the industry to address the underlying issues that make such reforms necessary.

Your views

Are the proposed refinements a progressive or retrograde step for the advice profession?

Will they increase consumer confidence in advisers or reinforce a perception that advisers are financial product salespeople?

Will they promote competition and flexibility or just maintain the status quo of vertically integrated Distribution?

What opportunities have been missed?

I’m interested in your opinion so please add your comments.




Attachment A

Opt-in:  Remove the opt-in requirements so that advisers no longer need to seek their client's agreement every two years.

Annual fee disclosure:  Remove the retrospective application of the fee disclosure requirement, so that advisers will not need to provide fee disclosure statements to clients who entered into a fee arrangement before the mandatory 1 July 2013 commencement date of FOFA.

Catch-all: Remove the catch-all provision (s961B(2)(g)) so that advisers can be certain they have satisfied their obligations under the best interests duty.

Scaled advice: Clients and advisers will be explicitly allowed to agree on the scope of financial advice to be provided, whilst ensuring advice is still appropriate for the client.

Life insurance inside super: The ban on conflicted remuneration will only apply to commissions on risk (life) insurance products inside superannuation in circumstances where no personal financial advice about these products has been provided i.e. where automatic coverage is provided inside a default (MySuper) superannuation fund.

General advice: Benefits relating to the provision of general advice will be exempted from the ban on conflicted remuneration.

Execution-only exemption: Introduce a causal link into the exemption so that benefits are permitted where no advice has been provided to the client by the individual performing the execution service (as opposed to the licensee or authorised representative more broadly) in the previous 12 months.

Training exemption: Broaden the existing training exemption, that provides for training in relation to providing financial product advice as a permitted non-monetary benefit, to include other forms of training that are relevant to conducting a financial services business.

Volume-based shelf-space fees: Amend the drafting of the ban on volume-based shelf-space fees to clarify that incentive payments between fund managers and platform operators for preferential treatment of certain products on the platform "shelf" are banned.

Define intra-fund advice: The definition of intra-fund advice will be referenced in the FOFA provisions.

Grandfathering: Amend the existing grandfathering provisions, that exempt certain benefits under pre-existing arrangements from the ban on conflicted remuneration, to allow advisers to move between licensees and to continue to access grandfathered benefits in certain circumstances.
Amendments will also be made to clarify the operation of the grandfathering arrangements with respect to the sale of financial planning businesses, superannuation to pension switches under multi-product offerings, and employed advisers becoming self-employed advisers.

Conflicted remuneration: Amend the conflicted remuneration provisions to:

  • allow for the payment of benefits under "balanced" remuneration structures;
  • expand the basic banking exemption to include all simple (i.e. "Tier 2") banking products; and
  • permit the payment of performance bonuses that are calculated by reference to remuneration which is exempt from the ban on conflicted remuneration.

Stockbroking: Amend the existing stockbroking-related exemptions to clarify the application of the stamping fee exemption to initial purchasing offer arrangements; and clarify the application of the brokerage fee exemption to products traded on the ASX24.

Minor technical amendments: A number of minor amendments will be made to address technical issues including clarification of the client-pays exemption and consequential amendments to the application of the wholesale and retail client distinction under FOFA.




(c) Sean Graham 2014.