Altering the Financial Services Reform Act’s (FSRA) definition of financial planning to include strategic advice is a good idea but it will be difficult to implement, according to industry participants.
In response to a story published by InvestorDaily around MyAdviser managing director Philippa Sheehan’s call to expand the FSRA to include strategic advice, many said the legislation is too limited to product.
However, FPA policy and government relations general manager Dante DeGori said any changes in legislation are unlikely to happen.
“The FPA from the start of the Future of Financial Advice (FOFA) discussion was trying to encourage Treasury to define personal and general advice, in order to allow strategic advice definition to be thrown in there,” DeGori said.
“That was part of our early submission in 2010 so we have explored this, but Treasury decided not to go ahead with that.”
DeGori said a likely outcome will be the ability to have limited advice licenses that are non product-specific, which come out as part of the accountants’ exemption replacement.
“Where the concession will be for the industry is the reduction in compliance obligations to match that licensing risk and that’s where you’ll get the change but you won’t get a new definition,” he said.
“Without a doubt, no one disagrees with clarity and certainty can be provided to advisers, but I don’t think we’ll see a definition change to the legislation.”
WLM Financial Services director Matthew Walker agrees with Sheehan’s thoughts, in particular that the definition should be changed to remove reference to any products and instead include all types of advice.
“This would ensure it is kept simple, but it would be difficult to regulate or enforce as ASIC’s mandate is to look after financial products,” Walker said.
“By doing as Sheehan suggests, we are getting more towards a common sense and common law approach that falls into more of the fiduciary duty category [but] the problem here is again one of definition or interpretation.”
Walker said the business receives feedback from compliance that strategic advice is not covered and therefore no statement of advice (SOA) is required.
“But bad strategies can bring a client undone just as easily as bad products. It should be covered if we’re serious about consumer protection.”
Strategy Steps director Assyat David said while she is supportive of creating more focus on strategic advice she wasn’t sure how to define strategy in legislation as it is such a broad term.
“I’m in two minds about it – I agree with the sentiment but I’m just not sure about the practicality of being able to legislate that kind of term,” David said.
“Maybe there are other ways of doing it.”
As a result of the Corporations Act only covering product, it ends up flowing down to the way ASIC views what advisers do and how compliance teams check advice given around a product, David said.
“I agree that the Corporations Act and FOFA reforms have to a lesser degree actually not provided much evidence around the importance of strategy,” she said.
“There needs to be some recognition of that whether it’s through the regulator or whether it be through the FPA and some of the other industry organisations.”
