In brief: Senators Jacqui Lambie and Ricky Muir this morning joined a group of cross-bench Senators in announcing that they would vote with Labor and the Greens to disallow the Government's FoFA regulations made in June this year – the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014. Partner Michelle Levy (view CV), Senior Regulatory Counsel Michael Mathieson (view CV) and Senior Associate Simun Soljo report on the implications.
The disallowance motion was originally to be debated next week, but the Senators are seeking to bring the vote forward. Senator Lambie previously voted with the Palmer United Party to reject a similar disallowance motion, but now proposes to vote in favour.
If the disallowance motion succeeds, it will reinstate:
- The obligation on advisers to give fee disclosure statements to all clients.
- The 'opt-in' requirement by which advisers are required to obtain consent from their clients every two years for ongoing fee arrangements.
- The original best interests duty provisions, including the 'catch all' in paragraph 961B(2)(g) of the Corporations Act 2001 (Cth), the 'safe harbour' provision, which requires an adviser to take any other step that would reasonably be regarded as being in the best interests of the client.
It will also remove the exceptions to conflicted remuneration introduced by the regulations, including:
- The exception for bonuses that are 'low in proportion to the individual’s total remuneration'.
- The exception for benefits 'calculated by reference to another benefit that is not conflicted remuneration'.
- The limited exception for conflicted remuneration if only general advice is given.
- The exception for benefits redirected by later arrangements.
- The notes intended to facilitate intra-fund advice.
Some of the changes made by the regulations were to expire on 31 December 2015. The Government was intending to replace some provisions with legislation. The Bill is currently before Parliament, but its passage now also looks in doubt.
The former Government's policy objectives in introducing FoFA were to improve the quality of advice and promote access to advice. The Government says that it supports those objectives. It also says it wants to cut red tape. ASIC is suggesting that FoFA doesn't go far enough to protect consumers from poor advice. But for product issuers and advisers, FoFA has always been difficult and is likely to become even more so. While the Government says simplicity is key, FoFA is a minefield of complexity – much of the drafting is impenetrable and the explanatory material is rarely helpful – either repeating the incomprehensible or saying something that is inconsistent with it. ASIC has tried to help with its regulatory guidance, but usually that ends with even more inconsistency.
And now, FoFA may shift again. What was banned and then permitted will now, assuming the disallowance motion is successful, be banned again. The industry would be justified in calling for further grandfathering relief, but this time for arrangements that have been put in place relying on the regulations that will be disallowed. And this isn't a frivolous suggestion, remuneration arrangements have been put in place in reliance on them and the Government's promises.
It is difficult to see that any of it has much to do with improving either the quality of advice or access to it.