The planning survival guide for 2002

The past 12 months has seen the working lives of Australia’s financial planning fraternity given a good shake-up and for some, it has even been turned upside down. The bad news is that 2002 will not be much easier.

The financial services industry has been forced out of its comfort zone by a stream of legislative changes, parliamentary delays and unclear guidelines, leaving many planners wondering what to do next.

Among the legislative changes planners have had to prepare for and contend with have been the Financial Services Reform (FSR) Act, the Alienation of Personal Services Income, PS 146, privacy, and disclosure reporting.

While long lead times have given most planners time to get their head around the changes, here are some basic guidelines to help ensure your survival in 2002.

Financial Services Reform(FSR) Act

The Financial Services Reform Bill was a thorn in the side of financial planners for more than two years, with parliamentary delays creating havoc for the industry.

However, on March 10, the wait will be over and the FSR Act will both take effect and trigger the commencement of a two-year transitional period.

The FSR Act will regulate the financial services industry with a single licensing regime that will enforce the way financial products and financial dealings are undertaken.

It is important for planners and practitioners to consider now how they will integrate FSR into the everyday running of their practice.

According to the Association of Superannuation Funds of Australia’s (ASFA) principal policy adviser, Brad Pragnell, the first thing to remember is not to panic. He suggests taking the following steps to simplify preparations:

1. Know the keydates

Planners need to be aware of the following key dates relating to FSR:

March 10, 2002 — the commencement of the FSR Act;

June 30, 2002 — deadline for compliance to IPS 146 under FSR;

March 11, 2004 — end of the transitional period to the new FSR standards.

Pragnell says there is no reason for planners to get worked up over FSR and its consequences, even if they are not aware of its exact starting date. Rather, he says planners need to be meticulous in their preparations for the introduction of the FSR Act and mark the above key dates in their diaries.

2. Keep a lookout

Despite the fact a commencement date has been set, planners must continue to look around for new guidelines and information on the Act.

Pragnell says due to the continuing changes the FSR underwent prior to being given the green light in the Senate in September last year, there is a possibility that many planners still have not read up on the latest amendments and guidelines.

The Australian Securities and Investments Commission (ASIC) released six policy papers presenting its view on FSR in November last year.

3. Seek help

Planners who are still unsure about guidelines and what applies to them, need to seek external professional help. Pragnell advises planners to check with the Financial Planning Association (FPA) and ASIC for updates on further policy papers.

ASIC’s executive director of financial services regulation Ian Johnston says as well as being aware of the practical time line aspects of FSR, planners need to be aware of the technical ramifications the Act will hold for their business. He advises planners to assess how their business will be affected.

Most financial planners have probably been conducting their business in a manner generally consistent with FSR principles for some time, and there is less change for this part of the financial services sector than is the case for other sectors.

However, Johnston suggests planners complete a ‘before and after’ matrix to see what changes are needed as a result of the new legislation, even if they want to provide all the same services to their clients.

4. Assess thebusinesses’opportunities

FSR is about a consistent approach across the sector and this may present opportunities for those suitably equipped participants where a successful business model and disciplines can be applied to other services.

Clearly the right expertise and capacities would need to be demonstrated to do this. Johnson advises financial planning practices to ensure, if they are a licensee, that they can demonstrate adequate and proper supervision of authorised representatives.

ASIC’s Organisational Capacities policy statement outlines requirements in terms of compliance and supervision. ASIC will be looking to see that planners have systems and processes that can identify and address issues, not just deal with problems as they arise.

PS 146

Incarnated as IPS 146, this policy statement sets out ASIC’s minimum training standards.

If planners follow these simple steps, they should move through 2002 unscathed:

1. Make sureonly those authorised give advice

Make proper use of paraplanners. Johnston says while ASIC’s PS 146 does allow planners to play an appropriate role in the advice process, a trained person must play the lead role in presentation of advice to clients.

2. Rememberwhat the lawsays!

PS 146 deals with the training standards of those who give advice to retail clients. However, the Act requires all representatives (not just those authorised) to be trained appropriately for the function they perform.

3. Be very clearon when you haveto comply

It would appear that there is greater acknowledgment of pre-1999 training and that there is recognition of continuing professional development. While these qualifications may be recognised, it is still important people comply with PS 146, so make sure you check the register.

Most importantly, keep yourself in the loop. If you are not sure, go back and read the original documentation and make sure you are reading the most current and updated version.

Disclosure

1. Look atASIC’s PS 168

While it primarily addresses product disclosure statements, Johnston says ASIC encourages you to consider how it can apply to other disclosure documents.

2. Think interms of the outcome for theclient and notjust about complying

Again Johnston suggests planners become familiar with PS 168, as ASIC talks about good disclosure outcomes and principles. But the basic principle stands: when in doubt, disclose!

Privacy

In December last year, the Financial Planning Association (FPA) introduced a new set of privacy regulations for the private sector. The Privacy Act incorporates a number of rules set out in the National Privacy Principles (NPP) and includes disclosure, data handling, data security, transfer and management of personal information, including electronically stored or transmitted information.

The following simple steps can be used as a guide:

1. FPA privacykit

The FPA released at its national convention in Brisbane last year the privacy implementation kit, which includes information on privacy conduct, examples of privacy disclosure statements, templates for member questionnaires and other applications.

2. Keep up-to-date online

The FPA has also set up a privacy Web page available on the FPA’s Web site (www.fpa.asn.au). This site gives planners access to the FPA’s internal privacy policy, privacy information papers and editorials.

3. Support isout there

FPA members should also use their existing internal complaints handling procedures for any privacy complaints that may arise. Planners should also remember that there is also the option to defer to the Privacy Commissioner should the incident be unresolved.

Alienation ofPersonal Services Income(APSI)

Late last year, the FPA and the Australian Taxation Office (ATO) went head to head over APSI in establishing guidelines outlining the options and treatment of financial planners.

While no exact outline has been finalised, financial planners can self-assess to determine whether they operate a personal services business.

Suggested guidelines for 2002 include:

1. Understanding the name of the game

The main principal behind APSI is that planners need to prove they receive income from the principal, that is, for services that he/she provides to other entities (customers) on the principal’s behalf.

Further, that at least 80 per cent of this income is commissions or fees based on the agent’s performance in providing services to the customers on the principal’s behalf.

2. Rules of play

Financial planners can self-assess to determine whether they operate a personal services business using the results test if 80 per cent or more of the personal services income is from one source.

A financial planner can self-assess under the results test if they satisfy one of the following four tests:

Results as under section 87-18

Business premises as under section 87-30

Employment as under section 87-25

Unrelated clients as under section 87-20

3. Applying for determination

Planners still have the option of applying for a determination from the ATO Commissioner.

Planners must demonstrate they pass one of the following four tests:

Results;

Business premises;

Employment; and

Unrelated clients.