Double Trouble

There was much celebration in financial planning circles last week when the Government backed down and referred amendments to the Tax Agent Services Act to the Parliamentary Joint Committee for review.

The bill has some serious flaws that are incompatible with the structure of the financial services industry. It would have made it impossible for a newly appointed Authorised Representative to provide any tax advice, incidental or otherwise.

This would have made providing compliant advice for new advisers untenable. The amendments also could have captured custodians, life insurers, researchers, IDPS providers and stockbrokers. Due to the 1st July start date there are many questions about the impacts of the amendments without time to assess them or respond appropriately. If the legislation makes it back to the House of Representatives, maybe with some of the problems ironed out, it appears the Government is intent on passing the legislation prior to the end of the financial year.

The accounting lobby is keen to ensure all planners are regulated by the Tax Practitioner’s Board. Paul Drum of CPA Australia said that the TASA amendments are "designed to put in place appropriate protections — that don't currently exist — for consumers obtaining tax advice from financial planners". However, financial advice including that on taxation related matters is already well regulated.

Firstly, from 1st July FOFA requires advisers provide advice only where it is in their clients best interests. An adviser must have the competencies to assess this before he may advise a client on a matter and taxation outcomes are a key consideration in deciding whether or not advice is in the client’s best interests.

Secondly, there are already training requirements in place under Regulatory guide 146 for financial advisers when recommending financial products. These vary depending on the type (personal vs general) and complexity of products being advised upon (tier 1-Diploma level or tier 2-Cert III level). This training currently includes a component of taxation considerations.

Finally licensed financial advisers are required to complete several hours each year of continuing professional development. Under ASICS training code certain hours of this are currently dedicated specifically to taxation for advisers that operate in this area.

There are also proposals under ASIC consultation paper 153 to enhance competency requirements for Tier 1 financial products, introduce a national exam for all advisers who provide tier 1 advice, hold knowledge update exams, introduce a supervisory model for new entrants and increase CPD requirements.

By regulating Advisers under TPB as well as ASIC it adds further complexity and cost to the provision of financial advice. The TPB is expecting Advisers will also comply with their approved continuing professional development program. There has not so far been any consideration suggested of how much of this is relevant for financial advisers who provide incidental personal taxation advice. It will also significantly increase time taken to comply with two sets of CPD requirements and thus inevitably increase the cost of providing financial advice.

There will also be a new licensing fee, $400 p.a. per adviser according to some sources, and increased paperwork for advisers and licensees to show compliance. PI insurance arrangements will need to be reviewed, complaints mechanisms relating to Tax advice will be altered and advisers will be required to prove they have completed relevant studies in taxation.

If extra training is deemed necessary, ASIC entry competencies under RG 146 could be altered to ensure sufficient taxation training is completed with advice from the TPB on what this may involve.

Why add so much additional complexity to an industry that is drowning in red tape for such a marginal change in outcomes?

Does the Government believe ASIC is not capable of regulating the industry effectively on its own, or - as many in online forums are suggesting - is this government deliberately applying the squeeze on the financial service industry, happy to hand advice over to the industry funds, banks and accountants?

Consumers want independent advice. It is however due to the costs associated becoming harder and harder to find. Excessive red tape will not improve the advice industry.

I am heavily in favour of higher standards of education, more professionalism and transparency but duel regulation is completely unnecessary and a step too far.

About Jason Bragger

Jason Bragger CFP is principal of Brisbane-based financial advice firm Dolfinwise and a member of the Financial Planning Association’s policy and regulations committee.

He has a background in applied mathematics and gained several years actuarial experience at National Mutual/AXA, as well as completing studies in macroeconomics at Monash University, before commencing his advisory practice in January 2000.

He also serves as Vice President of Riverside junior rugby club in Brisbane and plays cricket with the ‘mighty Muddies.’