Draft FOFA legislation 'ridiculously prescriptive'
The Government's opt-in rules amount to "third-party meddling in contract enforcement situations," according to Minter Ellison partner, corporate, mergers and acquisitions, Chris Brown.
The big negative for planners in the Future of Financial Advice draft legislation is that the proposed opt-in rules are "ridiculously prescriptive", said Brown.
"What you have is a requirement that the annual notice (this goes across annual fee disclosure plus renewal) says 'these are the services I should have provided to you in the last year, and these are the services that I actually did provide to you in the last year'," Brown said.
"The incursion of the Government into commercial affairs of adult Australians - who ought to know what their rights and obligations are - is beyond the pale," he added.
However, Brown conceded that the debate about opt-in was a battle that had already been fought and lost - unless the Independents attempted to amend the legislation.
The one positive from the draft legislation was that the industry appeared to have "dodged a bullet" with the grandfathering of trailing commissions, Brown said. Because the opt-in provisions will only apply to new clients after 1 July 2012, there is a strong possibility that the current generation of established planners will never operate in a predominately opt-in environment, he added.
When it comes to the 'best interest' obligations contained in the drafting, they represent the "worst of both worlds", according to Minter Ellison partner, corporate, financial services, Richard Batten.
"We have principle-based regulation that you have to comply with, and the uncertainty of that, and then we also have a very prescriptive regime and the inflexible 'tick a box' regime that comes with that," Batten said.
The prescriptive nature of the regime would inevitably lead to higher costs for licensees as they were forced to implement procedures and train their planners to comply with the new rules.
"The good licensees will react by saying 'okay, what do we need to do to manage this risk?' And they will impose additional requirements, which will cause additional costs to be embedded in advice, which will make potentially scalable advice less available," Batten said.
It appeared the current draft legislation would result in outcomes that the Government clearly didn't intend, Batten added.
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