Jake Elmhirst from Coller Capital speaks to James Dunn from The Inside Network on what private equity secondaries are. The Inside Adviser
As the biggest ETF provider in Australia, Vanguard has the right to crow about another knockout performance over active equity. But invective commentary is a red flag, especially when it’s based on something as changeable as recent market performance.
FSG exemption ‘almost entirely redundant’: Lawyer
Advisers employing the newly provided FSG ‘exemption’ might be doing so under false pretences, according to commercial law firm Cowell Clarke, because the legislation is unclear and may be rendered redundant as soon as the adviser implements a product recommendation.
The exemption to provide a Financial Services Guide (FSG) was a welcome inclusion in the first tranche of the government’s Delivering Better Financial Outcomes (DBFO) reform suite. Commencing on July 10 this year, it ostensibly allowed advisers the choice to either keep giving clients FSGs as per the existing requirement, or to display the information that normally goes into an FSG on their website as “disclosure information” instead.
Unfortunately, Cowell Clarke senior associate Richard Hopkin explained on a recent webinar for advisers, the legislation was written in such a way that the FSG exemption only covers the advice provision, not the dealing of product. So, in effect, the exemption only applies to the provision of financial advice, which is the first half of the advice process.
“The problem is that when you go to provide the additional financial service – being dealing in the financial product in order to execute the advice – that is not covered on a strict reading of the exemption, which would mean that you would then have to provide an FSG at that point,” Hopkin (pictured) explained. “For most advisers… that renders the reform almost entirely redundant.”
Nearly all advisers provide dealing services as a separate financial service to the provision of financial advice, he continued, which means that an FSG will need to be required at some point anyway.
“There are almost no financial advice licensees, general advisers or personal advisers that don’t provide some sort of dealing service,” he said.
‘Quite worrying’
What went wrong in the legislation isn’t clear, Hopkins said. The intent of the FSG exemption was to make advice provision easier, which was the overriding theme of the first DBFO reform tranche. Yet the technical drafting of the legislation didn’t reflect that intent, and neither Treasury, the government or the corporate regulator has come forward to explain why.
“We don’t actually have clarity from government or regulator about why the legislation is drafted this way,” he said. “If it was done so deliberately, Treasury needs to explain why. If it was done by accident, it betrays a misunderstanding of what financial advisers are actually doing, because it is limited to provision of financial advice. It doesn’t actually understand the whole client journey and the services that financial advisers are routinely providing, which from a legislative perspective… is quite worrying.”
This is not the first time legislation to enact the DBFO reforms has attracted consternation. The original draft included a proposal to call a class of specifically under-qualified advisers “Qualified Advisers”, while ambiguity around the treatment of Statements of Advice by superannuation trustees forced the financial services minister himself to issue clarification.
ASIC is due to release its guidance on the FSG exemption in November, Hopkin noted. That only serves to highlight, however, that advisers have been left to make their own assumptions for five months.
Two roads
What advisers do in lieu of further clarity is up to them and their licensees, but Hopkin believes there are a couple of options they can take.
The first option is to take what he calls the “purposive approach”, which is to acknowledge that the clear purpose of the legislation is to allow advisers the option of displaying FSG information on their website, sans clarity from ASIC or amendment from the government.
“The more cautious and conservative approach would be to say: ‘We know what it was supposed to achieve [but] that’s not what the legislation actually says, so until that legislation gets fixed, or until we have a clear steer from ASIC or Treasury, we’re not going to change what we do with website disclosure information, and we’re going to continue to provide FSGs until that point’,” he said.
For those that have already taken the purposive approach and started relying on website disclosure based on the unclear legislation, Hopkin believes it “may or may not” be an issue. The eventual nuance of the legislation will be a factor, as will the number of clients that have been onboarded. There are also, he noted, other exemptions in the Corporations Act that might assist.
The good news, he added, is that the advisers who may have jumped the gun on ambiguous legislation aren’t automatically required to confess to ASIC.
“Failure to provide an FSG is a contravention of a civil penalty provision in the Corporations Act.” Hopkin said. “But just to clarify, where someone fails to provide an FSG there is an exemption from the automatic requirement to report that to ASIC. That’s always been the case in the legislation. However, if the failure is systemic there might still be an obligation to report.”
