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The provision of financial services and advice to retail
clients came under scrutiny following the global financial crisis
in 2007/2008. A joint Parliamentary Committee on Corporations and
Financial Services was established in 2009 and its recommendations
have now been introduced in the form of draft amendments to the
Corporations Act 2001.
The draft reforms focus on four main areas:
Introduction of a duty to act in the best interests of the
client;
Requirements for annual fee disclosure and 'opt in'
arrangements;
Extension of the Australian Security and Investment
Commission's (ASIC) powers; and
Prohibitions against 'conflicted remuneration'.
Under the new provisions, the over-arching duty of financial
advisors will be to act in the "best interests" of the
client. However, the new draft provisions do not contain a
definition of "best interests". Rather, there are a
number of prescribed steps financial advisers are expected to
follow in fulfilment of this duty. This duty is intended to apply
to the provision of advice to retail clients only.
In circumstances where financial advisors have ongoing fee
arrangements, the amendments require advisors to provide annual
disclosure statements of their fees. In addition to disclosure,
every 2 years advisors must provide a notice to their clients that
requires them to "opt in" to the existing fee
arrangement. These duties apply to the provision of both general
and retail advice.
The existing law gives ASIC certain powers in relation to the
grant, suspension, cancellation or refusal to renew an Australia
Financial Services Licence (AFSL). The proposed
amendments are intended to extend these powers by enabling ASIC ban
a person from holding an AFSL who is not of "good fame and
character" or persons who are in breach or deemed likely to be
in breach of financial service laws.
In keeping with the new duty to act in the best interests of the
client, new prohibitions are being introduced to ensure that
advisors are not put in a position of 'conflicted
remuneration'. The draft amendments define 'conflicted
remuneration' as obtaining "monetary or non-monetary
benefit which might influence advice or product
recommendations..." For example, product issuers must not
give a benefit to licensees or their representatives with a view to
inducing them to offer/recommend that product over another.
The Government is currently considering public submissions in
relation to these draft amendments.
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