What the advice reforms mean for SMSFs

Christine St Anne  |  09/07/2014Text size  Decrease  Increase  |  
Christine St Anne: SPAA's Graeme Colley joins us again, and today he talks about the recent changes to the government FOFA reforms. Graeme, lovely to see you again. 

Graeme Colley: Thanks Christine.

St Anne: Graeme, there's been a lot of discussion about the Future of Financial Advice or the FOFA reforms. Can you tell us exactly what are these reforms?

Colley:
Well, FOFA was a range of measures brought in by the previous government to reform the financial services industry. Now, what that does is make sure that clients are well informed and that advisors are not conflicted in both the remuneration they get and the advice they give to the clients.

St Anne
: Graeme, there's also been a lot of discussion about the new government, watering down these reforms. So what exactly has been watered down?

Colley
: Well, it depends what you call watering down. There are some measures that the new government has brought in. Firstly, it's the opt-in provision where
clients were required every year to notify the advisors that they wanted good advice and they were willing to pay for that advice, and that's been done away with. There was a thing called the best interests duty. Now this came out of the Storm inquiry. It was a Queensland financial planning group where some things went awry with it; and with the best interest duty is a common law obligation of advisors to look in the best interest, that fiduciary interest they must have with their client.

Now, what happened with the previous government is that they added a number of things to that to make sure that there was not only the common law duty but also a statuary duty there. Now, on review of that, and we had our patron, Sir Anthony Mason have a look at that. He's an ex-Chief Judge of the High Court, and what he said was that the common law duty was probably enough to ensure that people were acting in the best interests of other parties.

Now with the catch-all provision that was put in there by the previous government, the current government has decided to do away with that. So, what it was saying was that, you can't gild the lily on this and that the original arrangement that was in place with a couple of minor changes there was certainly part of that. Another thing there was conflicted in remuneration and that was that if I give you some general advice or I give you other advice relating to your circumstances and I receive a commission for that, then that's regarded as being conflicted advice, because every time I sell that product I get some sort of commission payment for that. So, that's been I wouldn't say watered down but it's certainly different to the original proposal.

St. Anne:
So, Graeme what are the implications from these changeson SMSF trustees?

Colley: Well, one of the things that came through; through not only the FOFA reforms but also the other superannuations reforms that came through, which are individually linked was that with the accountants there's a limited licensing arrangement involved and so for self-managed superannuation fund trustee's what they can expect going forward is that they'll receive better and higher quality advice I would hope from professionals in the self-managed superannuation fund area, that not only includes financial planners, because they're now moving forward to get taxation advice linked in, saw some licensing arrangements there, there was the registration of auditors, SMSF auditors and also the requirement that accountants, have received a limited licensing arrangement in place. So, they're the main impacts that come out of it. They're not directly from the FOFA reforms but they're from the superannuation reforms that get linked in with FOFA.

St. Anne
: So, if trustees or individual investors are seeking advice, what sort of questions should they ask their advisors to make sure that these advisors actually comply with the new reforms?

Colley: Well, I think you need to look at the advice you're being given or the advice that will be given to you, the fees that you will pay for that. Make sure they open and disclose to you. Talk to other people who have used that advisor because word of mouth is very helpful for those, and also, have a look around on the websites and see what some of the independent opinions are on them. ASIC's got a good website about financial planners, licensing and what they should expect from a financial planner.

St Anne: Finally Graeme, the financial system's inquiry is set to release its preliminary results in mid-July. Does SPAA have any expectations?

Colley: We're certainly not privy to what's being announced with. Had a number of discussions with the committee and particularly David Murray about what we would like out of the inquiry. What we want to see is the development of a long-term investment market in Australia. It appears that if it's not broken, let's not fix it. There appears, with the committee that there'll be some comments in – some with self-managed superannuation funds, in particular on limited-recourse borrowing arrangements, and those sorts of things; but what we want to see is the development of a market which allows longer-term types investments. So, when you move into the pension phase of superannuation, you'll have greater security there, because with self-managed superannuation funds, what we've seen from some of the surveys is that going forward, the drawdown market or the pension side of superannuation seems to be solely devoted to self-managed superannuation funds going forward.

St Anne: Graeme, thanks again for your insights.

Colley: Thanks very much, Christine.

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