Industry codes need 'radical surgery'
The industry's existing codes of conduct will require "pretty radical surgery" before the Australian Securities and Investments Commission (ASIC) is likely to deem them sufficient, says Mallesons senior associate Michael Mathieson.
Under the amended Future of Financial Advice legislation, beginning in 2015 financial advisers will be exempt from the opt-in provisions if they sign up to an ASIC-approved code of conduct.
The codes of conduct will be approved by ASIC if they are deemed to obviate (ie, render unnecessary) the opt-in obligations.
"If you're asking 'how can a code make the opt-in requirement unnecessary?' you need to ask the question: what's the purpose of the requirement?" Mathieson said.
The original explanatory memorandum says the purpose of the ongoing fee arrangement provisions is to ensure that advisers don't charge open-ended fees where the client is receiving little or no service, he said.
"How can a code of conduct ensure that advisers don't charge open-ended fees without also providing a service? That's going to be a very difficult question for ASIC to answer," he said.
The easiest solution would be for an industry body to include an opt-in obligation in its code of conduct, Mathieson said, (tongue-in-cheek).
More realistically, what ASIC might be looking for is "a genuine fee-for-service requirement that's somehow imposed on the adviser", Mathieson said.
But that would be much harder to police than a "black and white" opt-in requirement, he added.
"It imposes a real burden on ASIC, both as to whether to approve codes and what it will require in codes. ASIC would require pretty extensive powers relating to oversight, compliance and enforcement," Mathieson said.
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