We came across this commentary while reading the Perpetual Limited, Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) for the six months ended 31 December 2012, and thought it was a useful summation of how the the Australian regulatory environment continues to be subject to significant reforms.
‘ASIC’s new financial requirements for responsible entities (REs) of managed investment schemes (MISs) came into effect on 1 November 2012. The changes aim to ensure REs have adequate resources to meet operating costs and appropriate alignment with the interest of investors.
The Future of Financial Advice (FoFA) package of legislation received Royal Assent on 27 June 2012. It amends the Corporations Act and through the introduction of regulations and ASIC policy seeks to address conflicts of interest associated with the provision of personal financial advice.
Importantly, it introduces the following key reforms from 1 July 2013:
- there will be a blanket ban on conflicted remuneration between product manufacturers and advisors, where financial product advice is provided to retail clients. Conflicted remuneration is defined as a benefit that could reasonably be expected to influence the choice of product advisors recommend to their clients. Conflicted remuneration includes commissions and volume-based rebates paid by product manufacturers to advisers. Volume-based fees paid to platform operators are also banned under the reforms. Generally, arrangements entered into prior to 1 July 2013 will be grandfathered and allowed to continue;
- a duty for financial advisers to act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and place the best interests of their clients ahead of their own when providing personal advice to retail clients. There is a safe harbour, which advice providers can rely on to show that they have met the best interests duty. This is intended to be the minimum standard of compliance with the best interests duty; and
- an opt-in obligation that requires advice providers to renew their clients’ agreement to ongoing fees every two years. ASIC will have the ability to exempt advisers from the opt-in obligation if they are satisfied that the adviser is signed up to a professional code that makes the need for the opt-in provisions unnecessary.
- MySuper – The Government will introduce a low cost default superannuation product called MySuper from 1 July 2013, which aims to simplify default superannuation products and improve their transparency and comparability;
- SuperStream – SuperStream is a package of measures designed to enhance the ‘back office’ of superannuation. When fully implemented, these measures should improve the productivity of the superannuation system and make the system easier to use;
- Self managed superannuation funds – The Government will implement a range of measures relating to self managed superannuation funds (SMSFs). Reforms in this area will improve their integrity and increase community confidence in SMSFs. They will also improve the operation and efficiency of the sector; and
- Governance – As part of the Stronger Super reforms, APRA has been given the ability to develop prudential standards in relation to superannuation. These prudential standards are akin to those placed on other APRA-regulated industries (such as banks and insurers) as well as superannuation-specific topics. These standards seek to ensure superannuation trustees have clearly defined governance processes in place across a range of areas including the management of risk, outsourcing, conflicts of interest, provision of insurance and investment management.’