Anyone who expected 2021 to be a quieter year than 2020 was in for quite a shock.
In addition to the wave of lockdowns that swept across the country in the wake of a new COVID-19 variant, advisers were once again subject to major changes at the regulatory, legal and industry levels. These included the Westpac v ASIC High Court decision, which emphasised how careful advisers need to be in client communications, and the dramatic increase in the ASIC levy which was then reversed with a temporary freeze back down to 2019 figures.
2021 also saw the commencement of the Design and Distribution Obligations (DDO) regime, annual renewal requirements for ongoing fee arrangements and new reference-checking rules for licensees. Perhaps most substantially, the Better Advice Bill made its way through Parliament - meaning that from January next year, FASEA's functions will be divided between Treasury and ASIC and the single disciplinary body (SDB) will be established.
Given the material changes many of these events have required of advisers this year, what are main questions that the industry will need answers for in 2022?
The future of FASEA
While FASEA's closure was announced by the Government in late 2020, it took nearly an entire year to get a clearer picture of what would be replacing it. We know that Treasury will be responsible for setting and amending standards via legislative instrument while ASIC will handle exam administration and operate the SDB.
Outside of that, there's still a lot that's up in the air. Regarding exams, ASIC has flagged "probably" four sittings in 2022, but we don't yet know when they will take place. ASIC commissioner Danielle Press, acknowledging that information like this is "of great interest to the financial planner community," recently told a parliamentary committee that the regulator is still ironing out some of the details and working with the Australian Council for Educational Research (ACER) on a new contract.
On a broader level, we still don't know whether (and to what extent) Treasury will be exercising its standard-setting powers in the near term. FASEA is consulting on long-awaited changes to Standard 3, but it's unclear whether there's any appetite beyond that to address some of the other lingering issues the advice community has with the Code of Ethics.
Single disciplinary body
The other major component of the Better Advice Bill was the establishment of the SDB. We now have more detail regarding when ASIC will be required to convene a Financial Services and Credit Panel (FSCP) under the terms of the new disciplinary regime for advisers, but it's difficult to tell at this stage how the regulator will exercise its discretion on this front. This is important, because the new SDB may precipitate a significantly larger volume of disciplinary action against advisers each year - which could, based on what we've heard in 2021, drive up annual costs for the industry.
ASIC financial advisers senior specialist Martin Stockfield has said it's "difficult for us to estimate the exact level of resources" because "we don't yet know exactly how many matters and what sort of matters we will necessarily be referring to the [Financial Services and Credit Panel]." And while the regulator hasn't received any extra funding to implement the Better Advice legislation, increased costs to advisers haven't been ruled out.
The ASIC levy may have been reduced for 2020-21 and 2021-22, but currently no telling how the SDB will impact it in the years to come.
ASIC's big advice affordability project may have been put on hold due to the work involved in implementing its new Better Advice responsibilities, but Treasury will be making use of the regulator's findings as part of the Quality of Advice review next year.
This project, which also incorporates a review of the Life Insurance Framework, will examine "important issues like the degree of underinsurance and maintaining access to affordable, quality advice," according to Senator Jane Hume. Given how wide the mandate is, it's hard to predict what Treasury will come up with in terms of recommendations for future policy changes.
If we were to speculate, though, commentary from industry bodies and parliamentary discussions would suggest an emphasis on the SOA framework, more widespread use of ROAs and the provision of scaled advice.
Scope of the CSLR
What likely won't be included in the Quality of Advice review, though, is any consideration of whether of the CSLR should be expanded beyond its current scope - at least based on Jane Hume's recent comments.
But it's also unlikely that advice industry bodies will give up on this issue easily. After all, in its current form, the CSLR will cost the advice sector an an estimated $12.3 million in the first year and $7.5 million for the next two years - substantially above the amounts leviable for other products and services included in the scheme.
Without the inclusion of managed investment schemes, advisers fear they may end up being held responsible under the scheme for matters beyond their control such as product failures. It remains to be seen how receptive Government will be to these concerns.
A total overhaul?
Finally, the ongoing Australian Law Reform Commission (ALRC) review of legislative complexity in financial services could have major ramifications for advice. While the final report isn't due until November 2023, the ALRC has said its interim findings could be factored into the Quality of Advice review.
On top of that, the commission has already made a range of recommendations and explored how financial advice, from a legislative perspective, could be severed from the definition of "financial product."
As part of its wider project of considering whether chapter 7 of the Corps Act should be reframed entirely to prevent the definitions of "financial product" and "financial service" being used inconsistently throughout the Act, the ALRC has considered how many aspects (or types) of financial advice do not relate to the Act's definition of "financial product advice".
A greater separation between advice and product in the letter of the law could make regulation of the former a far less onerous experience for all parties involved, but we don't yet know how (and when) the ALRC's recommendations will be implemented.
All of this goes to show, though, that 2022 is likely to be yet another big year for the advice industry. What else do you think needs to be addressed next year? What would you like us to focus on?
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