The Government has announced further details of the Future of Financial Advice (FOFA) reforms following its consultation process.
The new elements of the FOFA reforms are:
• A prospective ban on up-front and trailing commissions and like payments for both individual and group risk within superannuation from 1 July 2013. However, the Government has decided not to extend the ban on conflicted remuneration to risk insurance outside of superannuation.
• A prospective requirement for advisers to get clients to opt-in (or renew) their advice agreement every two years from 1 July 2012. This will be supplemented by an intervening annual disclosure notice to be provided to the client detailing fee and service information for the previous and forthcoming year, informing the client of their right to ‘opt-out’ at any point in time to an ongoing advice contract.
• A prospective ban on any form of payment relating to volume or sales targets from any financial services business to dealer groups, authorised representatives or advisers, including volume rebates from platform providers to dealer groups.
• A prospective ban on soft dollar benefits, where a benefit is $300 or more (per benefit) from 1 July 2012. The ban does not apply to any benefit provided for the purposes of professional development and administrative IT services if set criteria are met.
• Expanding a new form of limited advice called scaled advice, which can be provided by a range of advice providers, including superannuation trustees, financial planners and potentially
accountants, creating a level playing field for people who provide advice. Scaled advice is advice about one area of an investor’s needs, such as insurance, or about a limited range of issues.
• A limited carve out from elements of the ban on conflicted remuneration and best interests duty for basic banking products where employees of an Australian Deposit-taking Institution (ADI) are advising on and selling their employer ADI’s basic banking products. Basic banking products are basic deposit products (e.g. savings accounts), first home saver account deposit accounts and non-cash payment products (e.g. travellers cheques and cheque accounts).
• The Government will explore whether the term ‘financial planner/adviser’ should be restricted under the Corporations Act 2001.
There will be a statutory duty requiring advisers to act in the best interests of their clients when giving personal advice. But the duty should not be interpreted as imposing trustee-style obligations on financial advisers given the differences in roles between a trustee and a financial adviser. Compliance with this duty will be measured according to what is reasonable in the circumstances in which the advice is provided.
The Government is expected to release draft legislation for public comment after the middle of this year. Legislation giving effect to these reforms will be introduced into Parliament before the end of the year.
