The Association of Superannuation Funds of Australia (ASFA) has called on the federal government to consider a stepped approach to the implementation of its Future of Financial Advice (FOFA) reforms.
ASFA’s recommendation comes in response to questions put on notice at a Parliamentary Joint Committee hearing in Canberra late last month.
“While ASFA supports the FOFA reforms, it is important to note that implementation of these reforms, especially for superannuation funds, which will also have to implement changes resulting from the StrongerSuper reforms, will necessitate significant and comprehensive changes having to be made to what are mature and complex arrangements,” ASFA chief executive Pauline Vamos said.
“Implementing all of these changes will take time . rushing to meet deadlines materially increases the risks to any project.”
The fact FOFA and MySuper, under the government’s StrongerSuper reforms, were yet to be passed, as well as the MySuper legislation starting 1 July 2013, had impacted on the industry’s ability to implement the changes in an “orderly and appropriately risk-managed fashion”, she said.
“It should be noted in this context that both the Financial Services Reform Act 2001 and the RSE (registrable superannuation entity) licensing amendments to the Superannuation Industry (Supervision) Act 1993 included a two-year transition period for implementation,” she said.
Under ASFA’s recommendation, the FOFA requirements should be split in two, with a number of measures set to commence from 1 July this year and the remainder set to begin from 1 July 2013.
Best interest duty, scaled advice, intra-fund advice, opt-in, ongoing fee disclosure to new clients and bans on soft-dollar arrangements could begin from 1 July this year, ASFA said.
The requirements of ongoing fee and commissions’ disclosure to existing clients, and a ban on conflicted remuneration could start from 1 July 2013, it said.
“Due to the need to establish the correct interpretation and application of the new legislation, and determine its impact as it is being implemented, including any unintended consequences, we would urge that in administering the new legislation in the first year ASIC reaffirm its commitment to adopting a ‘facilitative’ approach to compliance,” Vamos said.
ASFA also put forward a number of alternative options regarding the implementation of FOFA.
Among the options, it suggested the government consider deferring the commencement of FOFA until 1 July 2013 as it would allow the industry sufficient time to implement legislative changes and would align with the start of MySuper.
The peak superannuation body also suggested the government consider the introduction of a transition period – either until 1 July 2013 or 1 July 2014 – similar to the two-year transition period that applied under the financial services reform regime.
A two-year transition period would need to be assisted by an opt-in process, where advisers ‘elect’ at which point in the transition period they are to become subject to the legislation, advising ASIC of the timing of this through an opt-in notice.
“This could operate with respect to the legislation as a whole or the legislation could be broken down into different measures, with opt-in occurring on a measure-by-measure basis,” Vamos said.
“Once an adviser had opted in to the legislation, or part thereof, they would be able to advertise that fact.”
