Print Post Approved PP255003/00299
Vol.25 No.29 | August 4, 2011 | $6.95 INC GST
The publication for the personal investment professional
www.moneymanagement.com.au
OPT-IN WILL INCREASE UNDERINSURANCE: Page 5 | ADDRESSING LONGEVITY RISK: Page 14
Lack of comparison undermines FOFA By Mike Taylor THE Federal Treasur y has admitted it has not done a complex international comparison of the Government’s proposed Future of Financial Advice (FOFA) changes and experience in major overseas jurisdictions. The absence of any such comparison has been revealed in the Treasury’s answer to a question on notice during Budget Estimates by Tasmanian Liberal Senator, David Bushby, and reveals that while the Treasury has monitored events overseas, its observations have fallen short of definitive point-bypoint comparisons. Bushby has told Money Management he is disappointed in the Treasury’s answer and will be pursuing the matter further when Parliament resumes after the winter recess. For his part, Financial Planning Association (FPA) chief
executive Mark Rantall questioned whether objective judgements could be made about FOFA in the absence of international comparisons. “Reforms of this magnitude that impact on both clients and financial planners should be viewed in a global context to see what works and what doesn’t,” Rantall said. “As an example, opt-in is not being introduced anywhere in the world because it is an inappropriate law,” he said. Rantall pointed to the fact that examinations had been introduced in South Africa and were having a major impact on financial planners. “The UK is looking at enshrining financial planning in legislation and banning commissions on insurance is not being implemented to my knowledge,” he said. “What global legislators are doing is impor tant to give context to the extent of the
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FOFA has caused deep concern in the industry and these issues need to be pursued. - David Bushby
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Mark Rantall wide ranging changes here and should be considered,” Rantall said. Senator Bushby had asked the Treasury whether, in the context of its work on the FOFA changes, it had performed research on overseas regulation regarding payment for advice. He asked whether, if this were the case, Treasur y could complete a “matrix” based on
Online tinkering tainting PDSs By Benjamin Levy
FUND managers with digitised short-form Product Disclosure Statements (PDSs) are altering the online accessory documents so often that they are in danger of accidentally including links to obsolete accessory documents when selling a product. An increasing number of fund managers and super funds are placing short form PDSs online, with a link to accessory documents within the PDSs as a method of reducing paperwork. However, financial software firms are raising concerns that fund managers are tinkering with the ‘incorporation by reference’ documents so often it is exposing them to the danger of including outdated accessory documents on PDSs that are provided to clients. By law, fund managers are allowed to include ‘incorporation by reference’ accessory documents in their short form PDSs.
Grahem Sammells IQ Business Group chief executive Graham Sammells said the risk of including obsolete accessory documents was much higher with online material in recent PDSs. “The issue is more at risk and pervasive in just the online world, and in the digital world there is a higher potential that changes will get made because it seems to be easier,” Sammells said. Digitised documents were becoming increasingly pervasive and more of an issue to manage, he said. Fund managers need to ensure that changes to accessory material are managed
and coordinated properly, Sammells warned. Senior consultant for superannuation communications company Transform Consulting, Ian Taylor, said that some funds were almost totally unaware of the issues involved in short form PDS and had to be walked through the legislation. Transform offers a short form PDS for super funds. “They’re really not aware of a lot of the issues, particularly around the incorporation by reference stuff,” Taylor said. Although easily updated online shor t form PDSs were “a beauty”, fund managers needed to maintain an ‘order trail’ to ensure that clients were accessing the current suppor ting documents, Taylor said. Aon Hewitt changed its existing governance procedures for their short form PDSs to ensure that any incorporation by reference changes Continued on page 3
whether countries had banned payments to financial planners in relation to superannuation products, managed investments and life insurance. Taking the question on notice, the Treasury later said it had “monitored developments in comparable overseas jurisdictions” and in particular the United Kingdom. However, it said it had not undertaken any
“matrix” of jurisdictions on financial advice issues. “Different regulator y approaches make a direct comparison between jurisdictions on the basis of superannuation, managed investment and life insurance through such a matrix difficult and possibly misleading,” the Treasur y response said. It cited, as an example of the difficulty in completing such a matrix, the “unique” nature of the Australian superannuation system. Senator Bushby told Money Management he did not accept that Australia was particularly unique or that the Treasury could not provide an appropriate comparison and that he would be pursuing the issue fur ther when Parliament resumed. “FOFA has caused deep concern in the industry and these issues need to be pursued,” he said.
Unethical lending practices flagged By Chris Kennedy SOME lenders have been taking advantage of regulatory loopholes to either recommend clients start up a self-managed super fund (SMSF) or obtain a declaration of business purposes to circumvent the National Consumer Credit Protection (NCCP) Act, according to industry sources. CPA Australia has formally advised its members that some lenders are seeking declarations from accountants that the purpose of a loan or lease will be predominately for business use, which helps a lender form a view that the loan is outside the requirements of the NCCP Act. CPA Australia has advised all its members
not to provide such a declaration, and if they do they should make rigorous enquiries beforehand. “You can assist your client in the lending process by providing them upon request, a statement on their financial position or other factual information about your client’s finances which you can verify,” the guidance states. CPA Australia financial planning technical adviser Keddie Waller said the requests for false declarations were most likely to come from smaller lenders and pertain to vehicle loans. A false declaration may have legal ramifications and in turn affect a member’s professional indemnity insurance, CPA Australia stated. Mortgage and Finance
Association of Australia chief executive Phil Naylor said a false declaration would represent a straight breach of the Act, and he would be horrified if such things were happening. “One of the things the NCCP Act was designed to do was to overcome those false business declarations that were made to indicate that the loan was for business purposes when it wasn’t,” he said. SMSF Loans director Craig Morgan said there was absolutely no question that some brokers and ‘property spruikers’ were crossing the line and advising people to establish an SMSF to invest in property. To make people aware that it can be done is fine, but when someone Continued on page 3