Financial Services Bulletin

A quarterly newsletter for fund managers, financial planners, financial advisers, mortgage brokers and accountants.

Printer-friendly version

December 2009 E-Bulletin

Life after the PJC Inquiry—what happens next?

PJC Inquiry report

The Parliamentary Joint Committee’s report into financial products and services in Australia (“PJC Inquiry”) was issued on 23 November 2009.

So what happens next? The first thing is that journalists may need to find a new source of material, but what about financial planners and product issuers? What can they expect?

The recommendations

The PJC Inquiry’s report set out 11 recommendations, some of which suggested further consideration of issues, such as the compensation fund.

From the 246-page report, there are six key recommendations:

1. Fiduciary duty—introduce a fiduciary duty for financial advisers operating under an Australian financial services (AFS) licence which will require them to place their clients’ interests ahead of their own.
    
2. Eliminate commissions—the committee recommended the government consult with and support industry in developing the most appropriate mechanisms by which to cease payments from product manufacturers to financial advisers.
    
3. ASIC resources—ensure ASIC is appropriately resourced to perform effective risk-based surveillance of the advice provided by licensees and their authorised representatives. The committee also recommended ASIC undertake the enforcement of legislative standards of advice with a more rigorous and targeted approach.
    
4. Marketing materials—require advisers to disclose more prominently in marketing material any restrictions on the advice they are able to provide to consumers and any potential conflicts of interest.
    
5. ASIC powers—ASIC to be given greater power to ban individuals from the financial services industry, and to suspend or cancel an AFS licence where ASIC have a reasonable belief the licensee “may not comply” with their obligations under its AFS licence.
    
6. Professional standards board—establishment of an independent, industry-based professional standards board to oversee the rules, competency and conduct standards for those wishing to call themselves “financial advisers” or “financial planners”.

How will this impact financial advisers and product issuers?

The financial services reforms contemplated by the report are a long way from becoming law. The report still needs to be considered by the Federal Government. The Federal Government has indicated it will do this in conjunction with the report of Jeremy Cooper into superannuation. New legislation will then be drafted which will need to be considered, debated and passed through parliament. ASIC may then need to develop new policy to implement any new rules or restrictions.

In the meantime, financial advisers and product issuers can expect ASIC to commence its enhanced surveillance programs. This is likely to include shadow shopping exercises and closer scrutiny of licensees and authorised representatives, in particular those who have come to ASIC’s attention previously either through complaints or the nature of the products they advise on.

In addition, industry bodies may also implement additional guidelines or rules to address some of the PJC Inquiry’s recommendations. For instance, the Financial Planning Association has already issued a Code of Professional Practice in response to a number of the issues raised through the inquiry.

Extent of changes to come

There is no doubt the PJC Inquiry will lead to further significant change to Australia’s financial services industry, which is ever evolving. However, the most contentious issue to come out of the inquiry, to cease payments to financial advisers from product issuers, still remains largely unresolved and is likely to take legislative intervention to see any significant change.

Interestingly, the PJC Inquiry rejected a number of suggestions which would have led to dramatic changes, such as a duty of suitability for product issuers and intermediaries; and greater prescription of product features and product availability.

Whilst some commentators have suggested the funds management industry in Australia, as we know it is over, the inquiry has not had much impact on fund managers. The committee’s report has really focussed on financial advisers. With a number of issues remaining unresolved, it will be interesting to see what the Federal Government makes of the recommendations when it conducts its review.

For more information, email David MacLeod or call 07 3239 2906.

McMahon Clarke Legal specialises in legal services associated with funds management, capital raising and litigation and risk management for listed and unlisted entities. For a full list of our services, please visit the main part of our website at www.mcmahonclarke.com or email us at info@mcmahonclarke.com.

To update your contact details or unsubscribe to any of our publications, email us at info@mcmahonclarke.com.

This newsletter is produced as general information in summary for clients and subscribers and should not be relied upon as a substitute for detailed legal advice or as a basis for formulating business or other decisions. McMahon Clarke Legal asserts copyright over the contents of this document. You are free to copy and use this information, provided you inform McMahon Clarke Legal first and acknowledge McMahon Clarke Legal as the copyright owner on any material produced.

62 Charlotte Street Brisbane Q 4000 | GPO Box 1279 Brisbane Q 4001 T 07 3831 8999 F 07 3831 1121