The AIOFP and former regulatory investigator Brett Walker have teamed up for a new white paper making the case for reform of the legal definition of independent advice.
The document, seen by ifa and titled Amending s923A for the Post FOFA Era, is a joint initiative of the association and Mr Walker, a consultant to advisers at Smart Compliance and a former staffer at ASIC predecessor organisation the ASC.
Its release follows ASIC’s recent and controversial clarification of its reading of s923A of the Corporations Act, which announced advisers who do not meet the strict criteria outlined in the act can no longer describe themselves as “non-aligned” or “independently-owned”, or use other terms of “like import”.
The white paper argues that that the provisions of the Corporations Act outlining the legal definition of independent advice – which was drafted and enacted back in 2001 – “needs adjusting” to better reflect the realities of the post-FOFA financial advice landscape.
It also argues that “consumers need market clarity on advice choice decisions and protection from product failure” and that the current legislation does not aid consumer understanding.
One of the key problems with the current provisions of s923A is that it places “unrealistic parameters” on advisers, the paper argues, which has allowed the major financial institutions to “supress competition” from the “genuine independently owned advice sector”.
The paper points to hidden agendas from industry associations representing the institutions as a influence on the Corporations Act and section 923A.
“The uncommercial parameters of s923A and this ‘masquerading strategy’ of institutionally-aligned advisers has created the very confusing outcome for consumers where most advisers ‘look the same’ – we contend this is an intended and engineered outcome by the institutional and institutionally-aligned associations to assist their members,” the document states.
It also argues that FOFA has a loophole whereby SMSF administration and establishment costs are not being perceived as conflicted remuneration unlike other platform and investment product revenue.
“We are not advocating a return to platform rebates, we are just pointing out the inconsistencies in FOFA’s application and why SMSF structures can compromise the parameters of s923A,” the document clarifies.
The inability for advisers to meet section 923A while operating under an approved product list is another “flaw”, the paper argues, since it fails to take into account “the way PI underwriters view the risk in our market”.
“A low risk, well researched APL must be observed or cover will be refused by the insurers,” it states. “Considering it is mandatory for all AFSL holders to have adequate PI cover to maintain their AFSL and stay in business, this condition is simply out of touch with today’s market culture.”
Instead, the AIOFP and Mr Walker propose that the current requirement to have an unrestricted APL be removed and replaced with a requirement to have professional third party approval of APLs.
It also suggests that grandfathered pre-FOFA revenue be considered for conflicts of interest on a case-by-case basis rather than a blanket rule.
It argues that a more common sense and commercially realistic approach to the definition of independence would have broad consumer benefits, including adopting an Oxford Dictionary definition of terms such as “independence”, “rebate” and “commission”.
“A measure like s923A, if maintained as it currently is, will drive more confusion not less when consumers look to find an adviser with their best interests at heart,” it concludes.
The white paper is part of the AIOFP’s broader efforts to lobby for amendment of s923A since ASIC announced its clarification in June.
To access the full white paper, visit: https://www.ifa.com.au/tmp/s923Awhitepaper.pdf
Reform of s923A will be a topic of debate at Australia's first IFA Convention on 7 September in Sydney. For more information, visit https://www.ifacon.com.au/
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