Imagine if the federal government in one radical swoop altered the way the financial advisory world operates. Under this vision, the government bans most commissions, requires all professionals who offer anything remotely akin to personal financial advice to assume fiduciary obligations, sets a rule calling for these professionals once a year to present their clients with a detailed list of all fees charged and to renew opt-in commitments every two years if they want to continue to get paid.

Actually, no imagination is necessary. All this occurred six months ago in Australia, home to roughly 2% of the world's investors. In July 2013, the Australian government began implementing Future of Financial Advice legislation, better known as FOFA. The changes mandated by FOFA included a ban on commissions (except for those paid for insurance products), requirements that all financial advisory professionals assume fiduciary obligations, renew client opt-ins every other year and provide reams of fee information to their clients.

"The requirements posed significant operational costs and restrictions," says David Jacobson, a partner in the Sydney-based law firm Langes, which has helped advisors cope with the new regulations.


Once the FOFA reforms took effect, the Australian financial services industry loudly called for push backs. After a new government took office in 2013, it upheld a campaign pledge and on Dec. 20, 2013, the Australian Treasury Department proposed "a package of changes to FOFA." The proposed reforms would "reduce compliance costs and the regulatory burden on the financial services sector," according to the department's announcement. The Treasury plans to introduce details of proposed FOFA changes in the fall of 2014 and ask lawmakers to approve them by year-end.

Not surprisingly, members of the political opposition—who had a big hand in devising the FOFA law—have criticized any proposed repeal. "As consumers are off shopping for their families for Christmas, the government is focused on unwinding reforms designed to restore faith in and professionalize the financial advice sector and ensure that Australians are getting financial advice that is in their best interests," according to a statement issued by opposition leaders. More back and forth can be expected.

But both U.S. and Australian financial advisors and consultants expect that only minimal refinements will be made to FOFA, rather than a wholesale rollback. They base those predictions on a worldwide trend of enacting more consumer protection-oriented regulation of the financial advisory industry, and see the developments in Australia as of a larger pattern of increased regulatory oversight.

The trend began in South Africa, where the government instituted tighter controls of the financial advisory industry in 2002. But the movement intensified at the start of 2013, when the British government, after six years of planning, introduced what's known as the Retail Distribution Review.

Under RDR reform, the Financial Services Authority, Britain's main regulatory body for the financial industry, set new requirements that barred commissions and called for fee disclosures to clients at the outset, allowing for ongoing charges only when the client has agreed to ongoing service.

In light of the moves in Australia and Britain, might U.S. advisors expect the winds of regulatory change to blow their way?

"This is not going to go backward," says Kathryn Ritchie, founder and CEO of KRStrategy, a New York-based consulting group with offices in Australia, New Zealand and Hong Kong, which works with financial advisory firms and banks. Typically, she says, regulators will refine new requirements once an overhaul has been completed, so the recent announcements by the Australians don't surprise her.

Jacobson, the Sydney lawyer, agrees. "The FOFA repeals are [going to be] operational and procedural fine tuning," he says. But he believes that as U.S. regulators mull new regulations, they might conclude based on the Australian experience that "any reforms cannot be too extreme and have to protect the rights of both consumers and advisors."

Noel Maye is the chief executive of the Denver-based Financial Planning Standards Board, an international nonprofit organization with a membership of some 150,000 planners, including 70,000 in the United States. In October, Maye and other FPSB members flew to Sydney for the organization's biannual meeting. The FPSB had scheduled the conference long before FOFA's enactment but the timing proved fortunate, since the trip afforded the Americans an opportunity to better understand the new regulations.

Maye casts the Australian developments in the big picture. He doesn't expect worldwide regulations of the financial industry to be precisely synchronized anytime soon, but he does foresee more general coordination among governments. "We see regulators from around the world talking to each other," Maye says, although "you are still going to have national jurisdictions and complexities," in particular in the U.S.


Unlike Britain or Australia, he believes that reforms will unfold more slowly in the United States because more than one federal agency has oversight of the financial advisory industry. But he warns that U.S. advisors should start to think internationally as their regulators are beginning to do.

Specifically, Maye has encouraged FPSB to develop "broad themes" of support for industry reforms that call for such things as putting the client first, full disclosure and mutual agreement on costs and standards for advisor competency.

Global demographics—with the population aging worldwide—will prompt more consumer protections in the financial advisory space, Maye maintains. Globally, not only do people have longer life expectancies, but they also have become increasingly responsible for their own retirement income.

At the same time, investing has become more complex. Given these shifts, Maye believes professional financial advisory organizations must work with governments to establish safeguards for consumers, especially retirees. Maye would like to see the impetus come from professional advisory organizations like his own, but says governments can "square the box" by giving the responsibility to enforce the safeguards to certain of those organizations, rather than assuming the responsibility themselves.

In Australia, the reforms have led some independent advisory firms to sell out to larger investment-product and banking companies. Those larger concerns possess deep enough pockets to afford the expenses attributable to FOFA, according to Ross Clare, a director with the Association of Superannuation Funds of Australia, the country's retirement industry trade group.

For example, the FOFA rules typically require a financial advisor to produce much more paperwork, which generally necessitates more staff. Before FOFA's reforms, Australia's large financial institutions invested in equipment and systems to meet the paperwork requirements, gaining economies of scale.

Some independent advisory firms, however, continue to thrive in the post-FOFA world. Advisors "who have confidence in the quality of their advice and the value that their clients attach it," Clare says, have begun charging an upfront fee and shunning commissions.

Will Hamilton is the CEO and managing partner of Hamilton Wealth Management in Glen Iris, Australia, which has around $100 million in assets under management. He started his firm about six months ago, as FOFA took effect, and ranks among those who have embraced the post-FOFA environment. "It's in our best interest to be open to our customers," he says. "They come to us because our competitors haven't been."

Even FOFA's onerous paperwork requirements haven't doused Hamilton's enthusiasm for the regulations. Instead, he has devised a paper-saving method for his firm, which offers clients portable computer drives bearing the firm's logo that contain all the lists of fees and disclosures that FOFA requires. In doing so, Hamilton explains, "We save on printing thousands of pages and gain a marketing opportunity."

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