Getting FOFA's timing right

The Government seems determined to bring on parliamentary debate on the FOFA bills well before the May Budget but, as Mike Taylor reports, Financial Services Minister Bill Shorten needs to outline a viable transition timetable.

When the Shadow Minister for Financial Services and Superannuation, Senator Mathias Cormann, earlier this month lambasted the Government for seeking to debate the Future of Financial Advice (FOFA) bills ahead of the findings of a Parliamentary Joint Committee (PJC), he was relying on formal parliamentary documentation.

Cormann was relying on the contents of the House of Representatives Draft Forward Program Indicating Legislation for Debate in the Autumn Sittings 2012.

While the document was certainly a draft, Cormann would have known that its contents were the product of public servants employed within the Department of the House of Representatives, who had gathered information from the various ministers’ officers via the Government whip.

In other words, someone in the Government wanted the FOFA bills to be debated in the Parliament early in the Autumn session.

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What Cormann would also have known is that, while it might not be good parliamentary manners, the Government was not legally obliged to wait for the findings of the PJC before bringing the FOFA bills on for debate in the Parliament.

It follows, then, that the Government is not obliged to accept the PJC recommendations and can simply pursue the FOFA bills as they currently stand, leaving it to the Opposition and the independents to force any amendments by way of parliamentary debate.

Given the original FOFA timetable laid down by the Government, it is hardly surprising that it is moving to have the bills debated as early as possible.

However, in doing so it needs to send a clear signal to the industry that it will allow an appropriate period of transition.

Putting aside the financial planning industry's ongoing strong resistance to the two-year opt-in and annual fee disclosure obligations, the most constant theme in submissions made to the Government, the PJC and the Senate Economics Committee has been the need for appropriate transition arrangements.

Allied to the calls for appropriate transition arrangements has been a call to align the FOFA implementation with that of the Stronger Super bills – also currently the subject of a review by the PJC.

The industry's position has been most clearly outlined in a submission filed –  by the National Australia Bank and its wealth management arm MLC – with the Senate Economics Committee reviewing the FOFA bills.

In that submission, signed off by MLC chief executive Steve Tucker, the big group argues that "transitional arrangements are essential to enable the financial services industry sufficient time to implement these reforms".

"With the referral of both tranches of the legislation to the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Economic Committee, it is most likely that the FOFA legislation will not pass Parliament until at least the end of the first quarter 2012 and most of the obligations are due to commence 1 July 2012," it said.

"This compressed timeframe between the legislation being passed and the commencement date is not adequate for the proper preparation to comply with the new legislative obligations.

"Referral of related Bills to Parliamentary Committees may result in a delay to the final passage of the Bills, with the additional risk of late amendments," the submission said.

"In addition, the industry relies on having completed laws to accurately develop systems and processes which we feel confident will comply with requirements.

"Any timetable for significant change requires appropriate structures for providing information on requirements and costs. This period encompasses:

• an analysis and economic impact assessment; a design phase; funding assessment and application;
• resource mapping and engagement;
• along with amendments to legal contracts (which may require external resources); disclosure and communication;
• and building, testing and launching the initiatives.

"Further, at the time of writing, the final components of FOFA have not been released, including the retail/wholesale mandated definitions which have a significant impact on other aspects of FOFA (affecting conflicted remuneration).”

The MLC submission also argued strongly for alignment of FOFA and Stronger Super dates "to ensure the industry manages to implement and comply with the full suite of provisions related to the FOFA and MySuper policies”.

It recommended both the alignment of the FOFA ban on conflicted remuneration with the date employers must make contributions for employees who have not made a choice of fund to a fund that offers MySuper (1 October 2013); and a transitional two-year implementation timeframe for both FOFA and MySuper before sanctions apply.

"MLC believes the parallel between FOFA and Stronger Super will have a significant impact on how intra-fund advice may be provided to fund members," the submission said.

"The provision of intra-fund scaled advice is contemplated in the Stronger Super Reforms. Thus, it is imperative that the FOFA legislation be considered in conjunction with the introduction of MySuper.

"Importantly, the FOFA legislation cannot be considered in isolation due to the potential related impacts which may affect the viability of providing intra-fund advice."

It seems that while the industry may have no choice in accepting the Government rushing to have its legislation debated in the Parliament well before the Budget and the winter recess, it will not easily or quietly accept a rushed implementation which drives up costs and the scope for unintended consequences.

Given that an appropriate implementation period would mean the post-FOFA and Stronger Super regimes will not fully apply until after the next Federal Election, there seems little reason for the Government to rush.