FOFA victory or pyrrhic victory?

As ASIC moves to translate the FOFA Acts into a new regulatory environment, there appears every chance that opt-in obligations may need to become an integral part of industry codes of conduct.

Once the Government’s Future of Financial Advice (FOFA) bills pass through the Senate, it will be the Australian Securities and Investments Commission (ASIC) which gives them their regulatory shape and texture.

As is always the case when governments develop legislation and negotiate it through the Parliament, anything that is not expressly stated in the bills or the explanatory memorandum becomes subject to the interpretation of the regulator, ASIC.

Thus it was last week informative to hear ASIC Commissioner Peter Kell explain a few things to a forum jointly convened by the Association of Financial Advisers (AFA) and the Financial Services Council (FSC).

What Kell made clear was that while, consistent with the Government’s obligations, financial advisers adhering to an approved code of conduct would receive class-order relief from the FOFA opt-in provisions, the codes of conduct themselves would need to address the issue of opt-in.

In other words, what was being touted as an important concession with respect to opt-in wrangled in the final days of the FOFA negotiations, might ultimately prove to be largely meaningless if ASIC imposes commensurate requirements for complying codes of conduct.

Of course, Kell made clear that there was a long way to go before ASIC could ultimately finalise the regulatory environment flowing from FOFA in circumstances where, at the time of addressing the FSC/AFA  forum, the legislation had still not passed through the Senate.

He might also have added, as did the AFA policy director Phil Gallagher, that implications for the regulatory environment would also be flowing from the Government’s Stronger Super legislation, which has not yet moved beyond tranche stage.

Indeed, Gallagher made an important point to the forum that, depending on the nature of any code of conduct opt-in requirements, many financial planners might find it more expedient to work within the two-year opt-in regime specifically outlined in the legislation.

Indeed, Kell’s address to the forum made clear that a great deal of uncertainty will continue to surround the whole question of opt-in and codes of conduct for some weeks to come, not least around whether it is only industry organisations which can deliver such codes.

Kell said that as far as he could tell, there was nothing to preclude another type of body seeking to have such codes of conduct endorsed, and it then became a matter of how those codes, which would need to have an element of uniformity, were policed.

But for OnePath head of financial planning Neil Younger, the outcome with respect to opt-in was last week looking like a disappointment.

“To now, as an industry, be in a position where we fought hard against opt-in, to find ourselves in a position where the code of conduct will essentially deliver the same result, is problematic for us all,” he told the forum.

Further, Younger argued that the whole process of turning the vague legislative outline into regulatory substance simply added more time, cost and uncertainty to the exercise.

“The time to then see a code in place, and the work the industry will need to go through to work out if it’s in the best interests of advisers in our respective networks to be part of that code, introduces further delay and uncertainty that’s unwelcomed by us all,” he said,

AMP's Al Kinloch was particularly vocal in his condemnation of what now appeared to be the outcome of all the industry’s efforts with respect to opt-in.

In a not-so-vague reference to the perceived deal between the Financial Planning Association (FPA) and the Industry Super Network, Kinloch suggested that it had represented the undoing of some hard-won gains by the major planning organisations, which were capable of extracting a more acceptable outcome with respect to opt-in.

“We could have won on opt-in, we could have ticked every single box, we were that close to winning opt-in,” he told the forum.

The bottom line for Kinloch and AFA chief executive Richard Klipin is that some important lessons have been learned from the FOFA exercise, not least the need for the financial services industry to have the capacity to speak with one voice.

Klipin believes much can be learned from the manner in which the industry superannuation funds have continually presented a united front, while Kinloch spoke of a single body representing the interests of the industry to both the Government and the bureaucracy.

In the meantime, all sides are waiting to see what the new regulatory environment ultimately delivers.