BILL Shorten is considering delaying the government's plan for an overhaul of financial advice, amid industry claims the proposed start date of next July is unworkable.
Under its Future of Financial Advice reforms, the government will ban advisers from receiving commissions and require clients to approve their adviser's fees every two years.
With financial planners complaining that many of the changes were too complex to be introduced by July, the Australian Securities and Investments Commission last week said it might overlook inadvertent breaches during the first year of the reforms.
But amid intense industry pressure, the office of the Financial Services Minister, Mr Shorten, has signalled he could delay the start date for the reforms, before a decision on the matter next month.
"The minister is open to considering whether further transitional arrangements are required beyond what ASIC signalled in the last few days," a spokesman for Mr Shorten said. "We expect to have more say in mid to late January 2012."
Talk of a delay comes amid financial planners' claims that introducing the changes by July would be impossible because of the extensive administrative changes and the fact that legislation is still before Parliament. It is believed that the government considers some of the industry arguments for a delay are legitimate. It is also keen to avoid any unintended consequences caused by moving too quickly.
The director of policy at the Financial Services Council, Martin Codina, welcomed comments from Mr Shorten's office and argued the reforms should be pushed back until July 2013.
"The minister's comments that the issue of transition will be resolved in January are very encouraging, particularly given the legislation is unlikely to pass through Parliament until April or May of next year," Mr Codina said.
"It will not be possible for the industry to be compliant with these significant reforms only two to three months after the legislation has passed particularly as much of the detailed requirements will be outlined in regulations which are yet to be released."
The reforms are linked to an overhaul of superannuation which does not take effect until July 2013 and will signal major changes in how advisers are paid. They also include new rules requiring advisers to act in clients' best interests.
Financial services firms have complained at having to make two major changes to their computer systems in the space of a year.
Mr Codina said delaying the reforms until July 2013 would avoid duplication in the industry.
Legislation for the financial advice shake-up is before two parliamentary committees and those committees are not due to report back until February and March.
Frequently Asked Questions about this Article…
What are the key changes in the government's Future of Financial Advice reforms?
The reforms would ban financial advisers from receiving commissions, require clients to approve their adviser's fees every two years, and introduce new rules that advisers must act in clients' best interests. The package is also linked to a wider superannuation overhaul.
Why is Bill Shorten considering a delay to the planned start date for the financial advice reforms?
Mr Shorten's office has signalled it may delay the reforms because the industry says the proposed start (next July) is unworkable. Concerns include extensive administrative and computer system changes, legislation still before Parliament, and a desire to avoid unintended consequences from moving too quickly.
What has ASIC said about enforcement during the first year of the reforms?
The Australian Securities and Investments Commission (ASIC) said it might overlook inadvertent breaches during the first year while firms transition to the new rules, recognising the practical challenges of compliance.
How could delaying the reforms until July 2013 help financial planners and firms?
Delaying to July 2013 would align the advice reforms with the superannuation overhaul that takes effect then, avoid firms having to make two major computer-system changes within a year, and give the industry time to comply after detailed regulations are released.
When will a decision be made about whether the advice reforms will be delayed?
A spokesman for the Financial Services Minister said the government expects to have more to say in mid to late January 2012. The legislation is also before parliamentary committees that report back in February and March, and is unlikely to pass until April or May.
What practical impacts will the commission ban have on how advisers are paid?
If implemented, the commission ban would mean advisers can no longer receive commissions from product providers. That will likely shift advisers toward fee-based arrangements that require client approval of fees (to be re-approved every two years under the reforms).
How will these reforms change the relationship between everyday investors and their financial advisers?
Everyday investors can expect advisers to be legally required to act in their best interests, a move away from commission-driven recommendations. Investors will also have to approve adviser fees on a two-year cycle, which should increase transparency around costs.
What are the main industry concerns about implementing the reforms by next July?
Industry concerns include the complexity of the changes, the timing while legislation and detailed regulations are still being finalised, the administrative burden on firms, and the need for significant IT and process updates that many say can't be completed by the proposed start date.
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