Bracing for Son of Wallis
The financial services industry has spent much of the past six years dealing with legislative and regulatory change and, as Mike Taylor writes, the forthcoming Financial Systems Review means there will be little respite for their regulatory and compliance personnel.
As the Australian financial services industry closes out 2013 it needs to brace itself for a further period of legislative and regulatory uncertainty ahead.
Because while the newly-elected Abbott Coalition Government has started delivering on its promise to remove, or at least water-down, some of the less desirable elements of the Future of Financial Advice (FOFA) changes, it has opened the door for more dramatic change via its “Son of Wallis” Financial Systems Review in 2014.
Further, the draft terms of reference of that Review make it clear that the Treasurer, Joe Hockey, intends that unlike the former Labor Government’s FOFA and Stronger Super approaches, he gets an outcome which deals with the entire architecture of the industry rather than just remodeling individual rooms.
The result is that companies operating in the financial services sector, having spent many thousands of dollars dealing with development and implementation of Future of Financial Advice (FOFA) changes and Stronger Super, will now need to budget to spend just as much over the next three years.
Hockey has given the review chairman, David Murray, a reasonably tight time-frame of just over 11 months to complete the review – which means that much of 2014 will be given over to the gathering of industry views and attitudes and therefore the development of submissions and policy papers.
Thereafter, much will depend on the recommendations generated by Murray and his team and the degree to which these are picked up by the Government and then translated into legislation.
However, it must be assumed that at least some of those recommendations will find their way into the Budget immediately preceding the next Federal Election.
This represents a major challenge for the financial services industry as a whole, but it also represents a substantial opportunity for the industry to engage with the Review process to drive outcomes capable of taking the sector forward over the next decade and a half.
Given that superannuation is now a central element of the Review, top of the list for the industry must not only be issues such as structure and governance but also post-retirement scenarios in circumstances where the Productivity Commission and the Grattan Institute are already canvassing the need to extend the pension age beyond 67.
The Productivity Commission’s canvassing of an extended pension age is neither unique nor surprising. In fact, it simply reflects many of the issues flagged in the last Intergenerational Report; however the issue needs to be taken further and wrapped into the broader sweep of the Financial Systems Review and discussion of the tax regime.
There can be no sensible discussion of the pension age or retirement incomes in the absence of a robust debate around Australia’s taxation regime and the manner in which it impacts superannuation savings and related products.
That is why the former Labor Government fell woefully short in the manner in which it established the terms of reference for the Henry Tax Review and then ultimately failed to adequately use its findings.
The Abbott Government will be making a similarly bad mistake if its Financial Systems Review fails to canvass all the issues and therefore does not provide a strategic blueprint upon which major policies can be developed and implemented.
It is easy to see why Financial Planning Association chief executive Mark Rantall has lamented the burden that dealing with the Financial Systems Review will place on the industry, and why he might call for the FOFA changes to be given a chance to work.
However, it would be wrong to seek to quarantine financial planning from the broader processes of the inquiry.
By the time David Murray provides his report recommendations to the Government, the financial planning industry will have been dealing with FOFA for the best part of 18 months. It will therefore do no harm for any problems to be resolved in the context of a more sweeping approach to the financial services industry and the way in which it works.
The financial services industry should not see David Murray’s review as an inconvenience. Rather, it should regard it as an opportunity to have some genuine input to some sweeping changes to the underlying architecture.
FOFA and Stronger Super reflect what happens when you adopt a piecemeal approach.
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