In brief - Effects to be felt by providers and consumers of
financial services and products
Businesses purchasing financial products or services will be
affected by the Future of Financial Advice (FOFA) reforms. The
reforms will also substantially impact the providers of such
products or services, including those businesses which may not even
be aware that according to the definition, they are financial
Government reforms a response to big financial collapses during
In July 2013, the government's FOFA reforms will become
mandatory for financial services providers. The reforms will impose
new obligations on financial services and product providers, while
granting greater protections to consumers, so the short answer to
the question in the title is "yes". The reforms will
impact upon insurance agencies, financial services licensees,
mortgage brokers and the clients of those institutions.
The reforms are designed to combat what the federal government
perceives as an unsatisfactory financial services regulatory
environment. During the global financial crisis (GFC), that
environment produced notorious financial collapses such as
Westpoint, Opes Prime and Storm Financial.
What do the FOFA reforms aim to do?
The FOFA reforms aim to prevent conflicts of interest in how
financial service providers are remunerated. This includes wealth
advisers and insurance and mortgage brokers.
The reforms will require financial advice providers to place
their clients' interests ahead of their own when providing
personal advice to retail clients. This will include advice to
small to medium enterprises falling under an asset/income
Other features of the reforms include the creation of an
"opt-in" arrangement allowing consumers (including
businesses) to review their financial services every two years, the
regulation of financial product types where a commission percentage
is charged, and the provision of "low cost" advice to
personal and business consumers.
The reforms will also give further powers to the Australian
Securities and Investments Commission (ASIC).
FOFA's effects on businesses
FOFA will create greater certainty about the rights and
obligations of both those businesses which provide financial
products and services and businesses which purchase those
The effects of the FOFA reforms will be felt by businesses
seeking investment and business loans, choosing corporate
superannuation plans for employees, selecting insurance products
for business (and employment) affairs, and accepting advice or
direction from financial product issuers such as banks, margin
lenders, superannuation funds and insurers.
Some likely effects of the FOFA reforms
For consumers, there are likely to be a number of positive and
negative effects including:
" a higher standard of care from the lending/financial
advisory/insurance advisory institutions that businesses use on a
" transparency of fees in those institutions
" two-yearly opt-in ability to review how your provider is
" likely increased costs passed on to consumers, due to
increased costs for businesses dealing in financial products,
including greater insurance obligations for such businesses
Are you a provider of financial services?
Some businesses may not even be aware that under ASIC's
definition, they are classed as financial services providers. ASIC
provides a useful overview of whether you are a financial services
provider (and therefore someone who requires a licence) on its FAQ
page: Do you need an AFS licence?
In addition, ASIC also sets out Regulatory Guides which explain
how the legislation works. For any business unaware of whether its
services and products are "financial", ASIC's Regulatory Guide 36 provides helpful direction.
If you are a financial service or product provider, it may be
important for you to obtain more detailed advice on how to cope
with the legislative changes.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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”
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).