Legal test looms if FOFA unchanged
The underlying legality of the Government's Future of Financial Advice (FOFA) changes will almost certainly be tested in the event the legislation passes the Parliament without amendment.
However, that legal test is likely to fall short of a High Court challenge.
While some sections of the financial planning industry are continuing to call for a High Court challenge to the FOFA legislation, mainstream opinion is that the sector should await the findings of the Parliamentary Joint Committee (PJC) reviewing the legislation and any resultant amendments.
Even if the PJC fails to deliver on the necessary amendments, Money Management understands the key financial planning organisations are unlikely to move to immediately support a High Court challenge and are more likely to at first obtain an opinion from high-ranking legal counsel.
Only some elements of the FOFA bills are regarded as capable of legal challenge, with the most obvious being those which serve to retrospectively alter the contractual arrangements between planners and their clients.
While a survey conducted by Money Management in the middle of last year found respondents were strongly in favour of legally challenging the FOFA bills, there has been a general acknowledgement that the cost of pursuing such action is beyond the normal financial capacity of the organisations representing financial planners.
The PJC has received more than 70 submissions regarding the FOFA bills, with the majority expressing concerns about key elements of the Government's legislation and recommending amendments to avoid unintended consequences.
Those submissions have also served to underline the continuing deep divide between the retail segment of the financial services group and the industry funds and not-for-profit sector.
The PJC will begin its public hearings in Sydney next week, with the key planning groups expected to press not only for amendments but for a delay in the implementation of the legislation to allow for an orderly transition to the new regime.
As well, the Association of Financial Advisers (AFA) has argued that the disjointed manner in which the legislation has been handled warrants the Treasury conducting a study of the impact of the legislation in terms of both the cost of advice and the quality that will be delivered.
The AFA is also suggesting that a summit be convened involving all the relevant stakeholders to review the legislation and to deal with elements not covered by FOFA, including the tax-deductibility of advice and restricted use of the term 'financial planner'.
AFA chief executive Richard Klipin said his organisation believed such a summit was justified in circumstances where the process around the development of the FOFA bills had been poor and had given rise to a number of poor outcomes.
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