ASIC has released Report 407 Review of the financial advice industry’s implementation of the FOFA reforms (REP 407), which presents the findings from an ASIC review of the implementation of the FOFA reforms by 60 AFS licensees between October 2013 and March 2014 (before the June 2014 changes).

Key findings in REP 407 include:

• how licensees’ revenue streams changed as a result of FOFA. The key changes, generally, across licensees have been:
  (a) a reduction in fees received by the licensee based on the volume of assets under advice or product recommendations;
  (b) an increase in fixed fees paid to licensees—these fixed fees included fixed fees for advice paid by clients, and fixed fees paid by superannuation funds to their licensee subsidiaries to cover the cost of providing intra-fund advice to members; and
  (c) a reduction in product commissions paid to licensees by product issuers.
• Compliance challenges and risks identified by AFS licensees included the requirement to provide fee disclosure statements, and the changes they needed to make to their systems, and revision of advice systems and procedures to comply with the best interests duty; most were relying on the ‘safe harbour’ steps under the Corporations Act 2001 to demonstrate their compliance with the best interests duty and related obligations.

Table 3 contains a summary of technical questions asked by licensees about FOFA, and ASIC’s responses.