Inside Money: Australia back-tracks on advisor rules

Australia's newly-elected Coalition government is apparently under pressure to scale back the FOFA reforms.

Just months into its first fully-operational year, Australia's Future of Financial Advice (FOFA) regime could already be sliding into reverse.

The FOFA legislation was introduced in 2011 after a series of scandals in the Australian financial planning industry sparked calls for wholesale changes, including the banning of commissions on investment products.

But, according to an Australian Financial Review (AFR) story published last Friday, the newly-elected Coalition government, led by Tony Abbott, is under pressure from "banks and financial services providers" to scale back the FOFA reforms.

In the lead-up to the Australian federal election in September the Coalition had promised to make some changes to FOFA, however, the AFR reports the financial industry is lobbying hard for more substantive concessions.

"The industry is seeking to permit so-called conflicted remuneration - payments to advisers who lure clients to a product - to be paid if the client consents," the AFR story says, which, if approved, would undermine a cornerstone promise of FOFA to eradicate investment product commissions from the face of Australia.

Of course, the commission-eradication process was not ever going to happen quickly as the 'ban' applies only to new clients signed up prior to July this year (and June 30 next year in some instances) with grandfathering rules allowing most existing arrangements to continue.

While the FOFA grandfathering rules are reasonably liberal, the Australian industry is pushing for further clarity on what happens to the exemption if advisers move to different firms.

But as the AFR reports, Australian financial institutions want FOFA diluted further including removal of the need for advisers to consider products outside an existing house 'approved list' before making recommendations.

There's no guarantee that the new Australian government will approve such a 'FOFA-lite' regime but it has already committed to a list of 'improvements' such as scratching the 'opt-in' rule that requires clients to formally approve remuneration arrangements with their advisers every two years.

By comparison to the FOFA fightback, the recent rewrite of New Zealand's financial adviser 'Code of Professional Conduct' has been uncontroversial.

Previously, the NZ 'Code' writers did look to Australian regulations for guidance on some issues but, given the flip-flopping FOFA, any trans-Tasman alignment has been pushed further into the future.