Australia’s wealth management industry is used to reform. Over the past decade, there has not been a single year where regulatory reform was not high on the agenda for the industry.
The reforms of the Financial Services Reform Act in 2001 were significant. However, the current level of regulatory reform impacting the wealth management industry is unprecedented. Many would argue that the current reforms are likely to have a more profound impact on the structure of the industry than the Financial Services Reforms of 2001.
There are many positive drivers for the current wave of regulatory reforms. Industry has encouraged the Federal Government to introduce law reforms to drive efficiencies in the market, clarity in relation to the taxation of managed funds, increased retirement savings for all Australians and improved competitiveness for the local funds management industry on the global stage.
Some reforms are being driven as a result of spectacular corporate collapses during the global financial crisis resulting in the loss of significant investment savings by a large number of Australian retail investors. Other reforms are being driven to improve investor education and informed decision making.
While many of the reforms will benefit the industry as a whole, there is no doubt that the costs of implementation will be significant. These costs will be felt by the industry at a time when many wealth management organisations are just starting to recover from the impact of the global financial crisis.
The list of current reforms is long. Here are some of the highlights:
- An increase in superannuation guarantee from 9 per cent to 12 per cent
- Abolition of commissions and other forms of conflicted remuneration for advisers
- The introduction of a statutory fiduciary duty for advisers
- The Cooper Review’s MySuper proposals to introduce a simple, cost effective superannuation product to meet the needs of the majority of Australian workers
- The Cooper Review’s SuperStream proposals to improve superannuation fund processing efficiency
- A reduction in withholding tax on distributions from managed investment trusts to 7.5 per cent
- CGT tax certainty for investors in eligible managed investment trusts
- A distribution attribution regime for investors in eligible managed investment trusts
- The introduction of a tax Investment Manager Regime
- Shorter product disclosure statements
- The overlay of unfair contracts laws on the provision of financial products and services
- Tougher insider trading laws
- The change of market supervision from the ASX to ASIC
- Changes to the rules on the payment of dividends from companies
- Introduction of the Financial Sector Reform Act which will widen APRA’s regulatory scope and authority through amendments to its preventive, crisis management, correction and investigative powers.
The amount of work that will be required to implement these reforms should not be under-estimated. Scheme and trust documentation will need to be amended, unitholder meetings may need to be held, key commercial arrangements will need to be re-negotiated, some products will need to be restructured, product disclosure documentation and other investor communications will need to be re-written and back-office procedures
and systems may need to be significantly altered.