Regulations to change the Future of Financial Advice (FOFA) legislation have been rejected by the Senate, with Labor winning support from former Palmer United’s Jacqui Lambie and the Australian Motoring Enthusiast Party’s Ricky Muir.

The pair had previously supported the Coalition’s regulations in the face of earlier Labor attempts to rescind them.

Labor, led by Sam Dastyari, also won the support of the Greens and independent senators Nick Xenophon and John Madigan to secure the Government’s defeat.

Advisers now face more red tape to as they look to comply with the original FOFA legislation.

Last week’s vote means advisers must obtain opt-in letters from new clients and send retrospective fee disclosure statements to all clients, while the “catch-all” clause in the best-interests duty is back.

The catch-all clause will need to be tested in the courts, due to its vague description in the FOFA legislation.     

And grandfathering rights for advisers have been thrown into disarray.

“The removal of the grandfathering amendments will reintroduce a roadblock to competition in the advice market, without any demonstrable benefit to consumers,” Association of Financial Advisers CEO Brad Fox said.

“This is a revenue stream that was legitimately established in line with the products and laws of the day. It stands to reason that if advisers will now lose this revenue when they move licensees, then they will be forced to stay where they are.”

He says the Government and opposition must look at this urgently.

Finance Minister Mathias Cormann says the Government will continue pushing for the FOFA changes via legislation.

There is a FOFA Amendment Bill before the Senate, although after last week’s vote it appears to be doomed in its current state. There will likely be behind-the-scenes talks on what is acceptable to Labor and what the Government feels it can give away.

Meanwhile, the Australian Securities and Investments Commission (ASIC) says it will take “a practical and measured approach to administering the law as it now stands”.

“We will take into account that – as a result of the change to the law that applies to the provision of financial advice – many Australian financial services licensees will now need to make systems changes,” the regulator said.

“ASIC recognises this issue may arise in particular areas, including fee disclosure statements and remuneration arrangements.”

The regulator says it will take “a facilitative approach” to the changed parts of FOFA until July 1 next year.