FOFA takes shape amid industry concern

The key lobby groups making up the financial services industry are hoping to see the first draft of the legislation emanating from the Government’s Future of Financial Advice (FOFA) reforms before the end of March.

After months of consultations closing out 2010, they are agreed that the delivery of draft legislation will provide a basis for moving to the next phase in discussions with the Government and allow a greater focus on the detail of the proposal.

The importance of seeing the draft legislation was emphasised by the chief executive of the Association of Financial Advisers, Richard Klipin (pictured), who said “only then will we get a real picture of what we are dealing with”.

All the financial services organisation representatives involved in the discussions around the FOFA reforms have praised the level of consultation pursued by officials from within the Department of Treasury, but acknowledged to Money Management that there remained significant concerns about how those discussions would be translated into legislation.

The main areas of contention remained the ‘opt-in’ provisions, the treatment of volume rebates and the fiduciary duty elements of the FOFA reforms, which were now being discussed in the context of ‘best interests’.

Financial planning dealer group executives have made clear they will be closely examining the draft legislation to determine whether the arrangements around volume bonuses will dictate a change to their business models, particularly their relationships with platform providers.

While Klipin said that he was reasonably optimistic that the Treasury officials had recognised and understood the concerns of the financial planning industry, other participants in the discussions said they were less confident.

They said they were concerned the Government was viewing much of the change in the context of superannuation, while the financial planning industry had a different perspective.

“I think we are going to be confronted by a first draft of the proposed legislation that is going to cause some heartburn,” one senior source said.

Klipin acknowledged that the shape of the first draft represented a substantial unknown but said it would provide an opportunity for the parties to focus on the detail of what was actually being proposed.

He said that, whatever the outcome might prove to be, he believed it would be beneficial for the financial planning industry to be dealing with tangible proposals rather than uncertainty.

“Our industry has been introspective since about 2007 so let’s look at these proposals objectively, and if they are sensible, then let’s follow them to an outcome,” Klipin said.