Australia: Further checks and balances for financial planning: an overview of the Corporations Amendment (Future of Financial Advice) Bill 2011 (Cth)

In brief - Federal government releases exposure draft of Future of Financial Advice (FOFA) legislation

On 29 August 2011 the Federal government released an exposure draft of its Future of Financial Advice legislation. The exposure draft is the first tranche of an ongoing revamp of financial services regulation in Australia.

The key areas of change in the exposure draft are the "opt-in" fee disclosure requirements, a "best interests duty" and increased watchdog powers for the Australian Securities and Investments Commission (ASIC). The exposure draft remains subject to change and is yet to be tabled in Parliament.

The "opt-in" requirement — 12 and 24 month fee disclosure

The Federal government's Corporations Amendment (Future of Financial Advice) Bill 2011 (Cth) (FOFA), the first part of which was announced on Monday 29 August 2011, could potentially introduce a series of tighter regulations for the financial planning industry. The announcement sparked a flurry of media attention and commentary from various political and industry commentators.

Currently, many advisers have a standard practice of gleaning an ongoing or trail fee from clients' investment portfolios as a means of payment for their services. The Financial Ombudsman Service (FOS) held in December 2010 that there was no obligation for an adviser to provide ongoing services to a client even where he or she charged trail fees. This stance will perforce be changed once FOFA is enacted.

FOFA will insert sections 962-962M into the Corporations Act 2001 (Cth), the principal piece of legislation currently regulating the provision of financial services. The explanatory memorandum accompanying FOFA accepts that financial advice entails a particular type of benefit which accrues over the period of a client's investment. The ongoing or trail fee remuneration structure has not been abolished.

However, FOFA imposes two key obligations for advisers when seeking to impose an ongoing fee:

  • firstly, where the adviser seeks to charge a fee for a period over 12 months, he or she must provide a fee disclosure statement to the client with information about their ongoing fee and their service, and
  • secondly, where the adviser seeks to charge a fee for a period longer than 24 months, he or she must provide a renewal notice to the client in addition to another fee disclosure statement

Client consent to ongoing fees must be obtained every year

The opt-in requirement, as it is called, effectively requires an adviser to obtain a client's renewed consent to ongoing fees every year. The client can opt whether to continue accepting the adviser's proposed trail fee. A fee disclosure statement must be provided at least 30 days before the end of the first 12 month period, and set out details of:

  • the fees already paid
  • the ongoing anticipated amount for the next year, and
  • details of the services the client has been entitled to, has received and will be entitled to receive in the next 12 months

Those requirements will be set out in some detail in a new section 962E of the Corporations Act. However, those will likely be elaborated further in delegated legislation or a body of rules once FOFA has inserted its new provisions into the Corporations Act.

Ongoing fees after 24 months

As to the 24-month reporting requirement, where the adviser intends to continue charging ongoing fees after two years, he or she must provide a renewal notice to the client at least 30 days before the end of that period. The notice will be in writing and include statements that:

  • the client elects to renew the ongoing fee arrangement
  • the ongoing fee arrangement will terminate should the client not elect to renew it
  • the client will be taken to have elected not to continue should he or she remain silent after 30 days from receipt of the renewal notice and fee disclosure statement, and
  • the renewal period is 30 days from receipt of the notice and statement

The client may also expressly elect not to continue with the agreement. If the client remains silent after 30 days or expressly elects not to continue with the agreement, it will terminate after a further 30 days. Once this occurs, there is no obligation to provide further services to the client. If the adviser continues to charge a fee, he or she may be liable for civil penalties under section 962L of the Corporations Act.

The maximum civil penalties for breach of the opt-in provisions will be $50,000 for an individual and $250,000 for a body corporate, as provided in section 1317G(1E) of the Corporations Act.

Acting in the client's best interests

The explanatory memorandum released with the exposure draft of FOFA explained that there is currently no obligation under the Corporations Act for advisers to act in the best interests of the client. Advisers already have a fiduciary duty to their clients, which imposes a strict duty on the adviser not to abuse his or her position of trust. This prevents the adviser from acting contrary to the interests of the client, obtaining a benefit to the client's detriment, or putting him or herself in a position of conflict.

Should FOFA be enacted, it will amend the Corporations Act to insert a statutory version of the fiduciary duty. This statutory duty will also go further by spelling out the steps an adviser must take to act in the best interests of his or her client. FOFA will insert section 961C into the Corporations Act, which will contain nine types of investigation that must be carried out by the adviser. However, "acting in the client's best interests" is not limited to those steps and will be subject to judicial interpretation if the legislation takes effect.

In brief, the nine steps that will be inserted in the Corporations Act as new section 961C will require an adviser to:

  • identify the client's objectives, financial situation and needs
  • identify the subject matter of the advice required by the client
  • assess whether the client data is incomplete or inaccurate and make reasonable enquiries to obtain proper information
  • assess whether the client's needs would be better achieved by way of different advice
  • assess whether the adviser him or herself has the requisite expertise to give advice on the requested topic and if not, decline to give advice
  • assess whether the client's objectives and needs may be met through means other than financial products
  • conduct a reasonable investigation of financial products that might achieve the client's ends or assess information investigated by another individual
  • where recommending product switching, assess and weigh the disadvantages and advantages of the products and only recommend the new product where it is reasonable to conclude that the new product may better achieve the client's ends, and
  • base all "judgements in advising the client" on the client's objectives, financial situation and needs

Failure to comply with "best interests" duty

Failure to comply with the "best interests" duty under section 961C will result in both a civil penalty, enforceable by a court, and a civil action for damages. Where a client is held to have suffered loss as a result of an adviser's breach of the "best interests" duty, the client can recover their entire provable loss under the new section 961P.

These damages will also be in addition to any civil penalty that is imposed. The maximum penalty is $200,000 for an individual and $1M for a body corporate.

Given the significant monetary penalties available for breach of the "best interests" provisions, it is apparent that the Federal government has taken a strong stance against inappropriate financial advice to retail clients. Ostensibly, this was the result of the collapse of large failed investment vehicles during the GFC. The FOFA package of reforms is designed to tighten the regulatory system surrounding financial services in order to prevent such disasters in future.

Approved Product List — products must meet client's objectives

Importantly for Australian Financial Service License (AFSL) holders, FOFA will insert a new section 961G into the Corporations Act. The section relates to the Approved Product List (APL). That section will require that where an APL contains no product that would achieve the client's objectives and needs, an adviser may not recommend a product from that list.

It will be a matter for advisers and AFSL holders to determine whether the adviser will be authorised to recommend a product not on the list, should the APL not satisfy the client's needs and objectives.

Replacement of Section 945A with Section 961H — appropriateness of advice

Currently, and up until the enactment of FOFA, section 945A of the Corporations Act requires that licensees and authorised representatives "know the client" and "know the product" when providing advice. Those steps have now been absorbed into the "best interests duty" and reiterated in section 961H which reads:

961H Resulting advice must be appropriate to the client

The provider must only provide the advice to the client if it would be reasonable to conclude that the adviser is appropriate to the client, had the provider satisfied the duty under section 961C to act in the best interests of the client.

Extended powers of the Australian Securities and Investments Commission (ASIC)

In brief, the Australian Securities and Investments Commission will be granted a series of extended powers relating to financial services and advisers. Those changes will be inserted into Part 7.6 of the Corporations Act, relating to the licensing of financial services providers. They are summarised in the explanatory memorandum as:

  • a power to cancel or suspend a licence where a person is likely merely to contravene its obligations, rather than breach them outright
  • a power to ban persons "not of good fame and character" or persons who are not adequately trained or competent to provide financial services
  • a power to ban persons if they are merely likely to contravene a financial services law, and
  • a power to ban a person who is involved or likely to be involved in a contravention of obligations by another person

Effectively, the powers granted to ASIC will raise the bar for financial advisers. Their test of competency will be required to reflect a higher professional standard, to that of a "fit and proper person". It will be necessary to scrutinise an adviser's character and competency thoroughly to decide whether they are eligible to provide retail advice.

The future of FOFA

Should FOFA be approved and enacted by Parliament after further consultations, it will introduce significant regulatory changes to the financial planning industry. It also expressly prevents advisers and clients from contracting out of their statutory duties, and allows civil actions to be commenced for any breach up to 6 years after the cause of action arose. The scheduled provisions of FOFA are notionally proposed to commence on 1 July 2012, although this date may change, subject to events in the interim.

Presently, FOFA remains in draft form and commentary on the exposure draft is to be submitted by 16 September 2011. There may be further changes to the proposed legislation in due course. It is also likely that additional regulatory instruments will accompany the future tranches of the reform.

As it stands, the checks and balances provided in FOFA will add additional security to retail clients who seek financial advice. It will also mean increased reporting and investigative obligations for financial advisers and AFSL holders. Should FOFA be enacted, it will require serious consideration and an overhaul of advisers' current retail advice procedure. For the time being, it will be necessary to keep one finger on FOFA's pulse.

For more information on specialist risk review and management, please see the website of Colin Biggers & Paisley or contact Gavin Creighton at, Kemsley Brennan at or James Stanton at

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.