The Government has issued draft legislation and regulations for the amendment of FOFA. These are significant changes and reach across each of the main streams of the exiting FOFA legislation.
As foreshadowed in their announcement just before Christmas, proposed amendments include:
- Conflicted remuneration: the ban will only apply to Personal Advice. General Advice will be exempt from the ban therefore significantly limiting the scope of this requirement. The Government also aims to clarify that the Execution Only exemption applies in circumstances where the benefit is paid directly by the client or by another party where the benefit is given at the direction of the client and with the client’s clear consent.
- Scaled advice: clients and advisers will be explicitly allowed to agree on the scope of financial advice to be provided. The existing best interests duty requires that advisers make investigations into their client’s broader objectives, financial situations and needs before providing scaled advice. Under the new regime, advisers need only investigate the client’s objectives, financial situation and needs that are relevant to the scaled advice to be provided.
- Opt-in: remove altogether the requirements for clients to opt-in to ongoing fees arrangements on a regular basis.
- Fee Disclosure Statements: remove the retrospective application so that the requirement only applies to clients that have signed-up post – 1 July 2013. This will significantly reduce the administrative burden for businesses to provide Fee Disclosure Statements to pre 1 July 2013 clients.
- Best Interest Duty: remove the catch-all provision (s961B(2)(g)) from the safe harbour approach. This leaves the initial six steps that advice providers can follow to evidence they have acted in the client’s best interest. The existing legislation left a corridor of uncertainty around the lengths required to satisfy this obligation.
- Grandfathering: amend grandfathering to allow for adviser movements between licensees
In general, these changes will come into effect from the date the Act is given Royal Assent. Specific timings are outlined in the Draft Explanatory Memorandum.
Your opportunity to submit comments on the proposed changes
You have a short window of opportunity to view and comment on the proposed amendments. Submissions must be in writing and made by the 19th February 2014 to either Email: futureofadvice@treasury.gov.au or Postal address: General Manager, Retail Investor Division, The Treasury, Langton Crescent, PARKES ACT 2600.
The Future of Financial Advice website contains a copy of the proposed legislation and explanatory statements.
What happens next?
Assuming all goes to plan, the proposed changes will go through Parliament in the 2nd and 3rd quarters of 2014. Once the amendments are passed, ASIC will go through the process of industry consultation and updating guidance. In the meantime, ASIC has indicated that they “will not take enforcement action in relation to the specific FOFA provisions that the Government is planning to repeal”. However, as noted in the Explanatory Memorandum, “ASIC’s stance does not remove a client’s right to take private action against a provider in the event they feel they are disadvantaged”.