FAA review 'starting with a blank slate'

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Next year’s review of the Financial Advisers Act will be a balancing act, one commentator says.

Monday, October 20th 2014, 6:00AM 1 Comment

by Susan Edmunds

A review of the FAA will start next year and is believed to be set to be wide-ranging.

Bradley Kidd, of legal firm Chapman Tripp, said there were areas of the law that clearly needed attention.

He said it was important that advisers could offer advice on new products such as crowdfunding. At present, that is difficult because advisers are required review a product before they recommend it. That is not hard for listed stocks with offer documents but could be tricky for small offers that do not have normal disclosure requirements.

He said a possible approach would be to offer exemptions up to a maximum value and with investor consent.

Kidd said boundaries between the different types of advice – and what constituted “no advice” also caused angst.

“Regulatory certainty may be highly preferable here.  After all there may not be much difference in effect between ‘I recommend this product to you in your circumstances’ - personalised advice, ‘I recommend this product generally to all my clients’ - class advice, or ‘here is some information which recommends this product’ - no advice.”

He said how those boundaries were drawn, and how that could be made meaningful and workable were areas that needed attention.

The FAA needed to be updated in line with technological advances, he said. “Take for example the client who books an overseas trip by credit card and receives an automatically generated email about travel insurance for their particular journey and profile.  At present, this advice could be construed to amount to personalised advice to a retail client and would therefore need to be provided by an individual because under the FAA such advice cannot be given by an entity.”

He said licensed entities should be able to give personalised financial advice on simple products.

Kidd said the FAA had worked well so far. “You’ve got to applaud  the FMA for the role they’ve taken to take a piece of legislation and make it work in the context of an industry that was previously largely unregulated. From a standing start to now the legislation has worked in many areas and lifted standards.”

But he said it had to be acknowledged that compliance costs were significant and in some places advisers would say it had gone too far. Kidd said his firm urged the FMA to look at the effect of Australia’s FOFA reforms.

“On the vexed question of commissions, we consider that the current regulated standards and remuneration disclosure requirements are appropriate and that a ban would be likely to lead to a significant decline in advice being sought.”

The review was a chance for advisers to offer input, he said. "My understanding is they're starting with a blank canvas."

He said the review would have to balance advisers’ views and those of consumer protection groups and other interested parties.

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