"The law shouldn't be the physical ball and chain on our electronic legs." - Investment and Financial Services Association chief executive Richard Gilbert, December 2007.
What a difference 12 months makes. This time last year then treasurer Peter Costello's spin doctors were flat out selling Simpler Super; doomsayers bombarded inboxes about anti-money laundering (AML); a cut-down statement of advice (SOA) was at best a vague hope; and Centro Property Group and Basis Capital were the hottest things in town. The market was soaring.
If 2007 was any indication of the huge impact that changes to legislation, policy and regulation can have on financial planners everywhere, get ready for a wild ride in 2008.
Surveys continue to show that being up-to-date with compliance is the biggest source of worry for planners and the single greatest activity that takes up the most precious client-facing time.
Of course, regulation is an unavoidable by-product of modern financial markets. Good planners use compliance to their advantage and build strong businesses by being terrifically compliant with excellent systems and processes.
But even the best planner or paraplanner will attest to the groaning weight of red tape that eats into the day's work and confronts them whenever even the simplest advice is given. In-house compliance teams need more people to keep up with the rate of change from the largest to the smallest business.
The amount of pressure government and regulators are under to cut red tape for planners is mounting.
The ink was barely dry on Kevin Rudd's new business cards when lobbying took off after months of pre-election speculation about a change of government.
Key stakeholders had the phones at Parliament House running hot immediately after the November 24 victory. Heads of professional associations have indicated they will be clocking up many more frequent flyer points to the nation's capital this year.
Industry powerbrokers have made it clear what they want: more flexibility around super and insurance; more exporting of financial services; tax reform for managed investments and self-managed super funds; more disclosure for retail investors; and fewer barriers to the giving of financial advice to the four out of five Australians who do not seek it.
Moves are underfoot through the Financial Industry Council of Australia to amend the legal definition of advice in order to broaden its provision.
As the Rudd Government gets down to business after the summer break, how much will the business of giving advice change?
Super for the masses
Undoubtedly, the major regulatory change during 2007 that will flow into 2008 is the Simpler Super package.
Recent data from research house Plan for Life shows no slowdown in super inflows in the September quarter into platforms after June's stellar quarter when the package was introduced. Figures also show huge increases in flows into retirement products.
Transition-to-retirement planning is a bread and butter business for planners and Labor is under pressure from the financial services sector to make it easier for people to save as baby boomers march toward retirement.
The figures speak for themselves. AMP and Axa both released studies last month showing most Australians do not have enough to live on in retirement.
Last year was the first year new allocated pension products exceeded new superannuation products, according to Morningstar.
Labor has continually argued the 9 per cent superannuation guarantee will fail to provide enough for retirement. The fact remains, however, that the bulk of the money in the June 30 rush was placed by only 3 per cent of Australian super fund members.
The ALP is expected to build on Costello's reforms. However, it will broaden the super regime beyond the main beneficiaries of last year's changes, wealthy pre-retirees, to extend the benefits to low and middle-income earners.
Industry leaders are waiting to see what newly-appointed Corporations Law and Superannuation Minister Nick Sherry has in mind for the nation's $1.2 trillion super savings. It is certainly the first time a federal government minister has held responsibility solely for these areas, and Sherry is keen to get to work. Some of his pre-election policy announcements included pledges to fix the $10 billion problem of lost super, cut prohibitive exit fees and establish a clearing house for super contributions.
Labor has ruled out any increase in employer contribution above 9 per cent, but it is likely to consider soft compulsion for workers through an 'opt out' option or by increasing the income range for which the government co-contribution applies.
The Investment and Financial Services Association (IFSA) and the Association of Superannuation Funds of Association have argued strongly in favour of these initiatives and are setting up taskforces to bring the case for change before government.
IFSA says one scenario could be reducing the super contribution tax for women who come into the workforce later in life and for low-income earners from 15 per cent to as low as 5 per cent.
This would broaden the need for people on lower incomes to seek financial advice if the current system of disclosure is simplified to make advice more affordable.
In a recent discussion paper, Mercer argued such incentives to save are welcome but do not solve the complex puzzle super fund members must face when deciding to make additional after-tax contributions, more salary sacrifice contributions or a combination.
Clearly there is much work to do and clients need to be properly educated on their options.
Easing the SOA pain
When Labor launched its Business Red Tape Reduction Package last May, it was a culmination of many years of complaining about the burden of regulation on business.
Rudd has pledged to introduce simple, standard, readable disclosure at a cost of $3 million over four years. He says this will reduce compliance costs for financial services providers and improve consumer protection by providing "easy-to-read disclosure documents".
The documents will be "no more than three or four pages and will reflect different products and providers", he said.
It all sounds hopeful, if short on detail. It almost certainly is a sign that the Government will act more swiftly than the Coalition in helping the market deal with cumbersome and lengthy procedures that have been a much-hated consequence of the 2002 Financial Services Reform Act.
The Howard Government's transition to the Simpler Regulatory System package was cut short when the Coalition lost power and it is too early to tell what Labor will do.
Again, this is Sherry's domain. A member of the parliamentary committee that oversees ASIC and well known for holding divergent views from his Liberal colleagues last year, the minister famously said he would "take the axe" to financial services reform (FSR).
For planners, this might come as a welcome relief.
"The one thing that has driven everyone completely mad is the statement of advice. And that includes ASIC, the former government and opposition," FPA chief executive Jo-Anne Bloch says.
"It takes too much time, contains too much material and has too little impact."
IFSA chief executive Richard Gilbert agrees.
"The current definitions and requirements imposed on the provision of advice result in lengthy written disclosures and additional costs," Gilbert says.
"This has put financial advice out of reach of many Australians who are most in need of advice."
There were several positive changes to ease FSR pain in the past 12 months that are currently being worked through at the dealer group level.
Legislative changes last year in the former government's Simpler Regulatory Bill included incorporation by reference, which has helped many dealer groups cut their SOAs down by two-thirds and move a lot of the information online.
A much-heralded regulatory change also saw the stamping out of the need for an SOA for amounts under $15,000.
This is aimed at removing the need for an SOA when the advice does not involve a product recommendation or when no remuneration is received.
But problems remain. Planners are in the business of receiving remuneration for recommending products and a great many believe a client is only worth the business if they have investable assets over $100,000.
Labor has indicated that it intends to go much further and simplify and standardise all financial disclosure information on a product-by-product basis.
This will have far-reaching consequences for giving the client more control and the ability to compare products, such as differences in fees among super funds.
Watson Wyatt managing director Andrew Boal says while new initiative to help understanding are welcome, the investor still bears the cost.
"While initiatives to help members to understand superannuation and their benefits are welcome, it is important to remember that the cost of such changes - as with the numerous updates that have been required to be made to product disclosure statements as a result of legislative changes in recent years - is ultimately borne by fund members," Boal says.
Bloch says the FPA is in complete agreement with Labor's plan to slash red tape and disclosure and will work with the Government to ensure it is delivered.
Red tape reduction is high on the to-do list of the FPA's influential government policy and regulation (formerly the legislation and regulation) board committee, which is chaired by BT's Magnitude chief, Mark Spiers.
This is on top of the major issues the committee is still working on, including ASIC's increase in professional indemnity insurance, the Financial Industry Complaints Service and tax reform.
What is needed, according to the FPA, is a return to the core legal requirement of clear, concise and effective disclosure.
It distributed an eight-page draft SOA developed by a group of senior planners to its membership and regulators late last year and submissions have now closed.
IFSA and the FPA will also introduce uniform fee disclosure templates this year.
Roan Financial principal Peter Roan, who helped to produce the draft SOA, says planners want this uniform disclosure of fees to provide "a bit of common ground".
"Everyone has their own way of doing it and the poor consumer [cannot] compare apples with apples," Roan says.
"If I look at some of the fee tables, I can't even understand them."
Labor's unknown agenda
There are huge areas of uncertainty around regulation under the new government, the corporate regulator and peak professional associations. It is a case of wait-and-see before pre-budget meetings in Canberra this month.
Along with reforms to super and disclosure, a large number of complex issues face licensees in 2008.
The FPA wants the minimum RG 146 requirement for licensees to be raised and, ideally, wants those giving full-scale advice to hold the certified financial planner designation.
The association is also lobbying Labor to allow recipients of financial advice to claim a tax deduction on fee-for-service advice to bring the situation in line with that of commissions.
ASIC is stepping up its requirements for reference-checking of licensees under its Bad Apples project. A review of criminal penalties for breaches of the Corporations Act is also underway.
The first tranche of AML and counter-terrorism legislation comes into force from March 31, 2008. This will put the onus on advice firms to ask new and existing clients for extra identification requirements.
FICS will increase the monetary limit by 50 per cent from July 1, 2008, for advice-related claims to $150,000. Sherry last year said he wanted it raised to $500,000.
The FPA plans to make it compulsory for advice fees and product fees to be split through its conflicts of interest principles.
PI insurance is now mandatory for planners and ASIC says it expects higher levels of PI.
Self-managed super funds (SMSF) will continue to face increasing scrutiny from the Australian Taxation Office.
There are concerns Labor will review the gearing ban on SMSF members that was overturned last year through former assistant treasurer Peter Dutton.
SMSFs, now allowed to borrow through instalment warrants, can borrow for lifestyle assets. Speculation is mounting Sherry will review this following concern from super funds that the legislative amendment has gone much further than the Coalition intended.
The previous government ruled that it will stop tax breaks on non-forestry managed investment schemes from July 1, 2008, with obvious implications for investors in new agribusiness products.
A test case on the status of product rulings with managed investment schemes is being battled through the Federal Court.
Underpinning all this is Labor's vow to cut ASIC's budget by 12 per cent if elected and to review the co-regulator model between ASIC and the Australian Prudential Regulation Authority.
Market turmoil and regulation
The market slowdown provided a jolt to the new year. The obvious questions are being asked about how well investors are protected and understand risk, particularly in the areas of margin lending, increased super contributions and the rise in the large number of complex financial products sold to amateur investors.
Concerns about disclosure, effective regulation and investor protection are inevitably followed by legal action when things go bad.
Former Perpetual chief executive Graham Bradley gave a word of warning to a group of fund managers, planners, accountants and journalists in Sydney on January 31.
"Increased compliance, while a nuisance, is a small price to pay for [the] guaranteed growth the industry has been handed on a plate. It is only proper that hand-in-hand with this virtual blank check there is a demand for better industry practice," Bradley said.
History has shown that any reform legislated by a new government, particularly if it is responding to an outcry by investors who have lost capital, is likely to go further than necessary, Bradley noted.
The strength of recent regulatory changes have "not been fully tested, but I fear it will be very soon, and found wanting", he said.
"Advisers who follow procedures and maintain the right paperwork and provide the right boilerplate are fairly well protected. But are investors really well informed? And is their money better protected?"
Market tumbles, disclosure overhauls and a booming super revolution: prepare for a wild ride ahead.
