There is no doubt that the Future of Financial Advice reforms
(FOFA) will significantly transform the advice landscape, and there
is debate around which sectors of the advice industry will be the
winners, and how long the losers can survive. At this stage, it is
too early to call where the strategic ripples will land, but there
are some emerging signs which look interesting:
The new regulatory settings seem to provide
superannuation funds with some strategic advantages over other
Many of the structural adjustments required by FOFA do not have
the same bite for superannuation funds. After both FOFA and
StrongerSuper reforms, fund trustees can still provide advice about
the fund and options within the fund ("intra-fund
advice") without directly charging a fee. External financial
advisers, on the other hand, will need to address all the FOFA
issues, including conflicted remuneration and fee transparency, if
they wish to provide advice to fund members about their interest in
Superannuation fund trustees also enjoy ready access to their
members and are consistently ranked as among the most trusted
financial professionals by their members. In-house superannuation
fund advice teams are also more culturally aligned to a
fee-for-service environment than many external adviser networks.
All of this means that superannuation funds are in an excellent
position should they wish to talk to their members about a wider
range of advice issues than they have in the past.
Not all trustees will have the capacity to capitalise on this
opportunity with existing internal resources and some may choose
not to. This could create an opening for external adviser groups
looking to partner with under-resourced fund trustees.
Scaled advice will require careful scoping around
discrete subject matters.
With advice fees becoming more transparent, clients can be
expected to be more prescriptive about the scope of the advice they
are seeking. Despite initial industry concerns, Australian
Securities and Investments Commission's (ASIC's) guidance
on the FOFA best interests duty, makes it clear that advice about a
narrow subject matter will often be appropriate. However,
determining the subject matter with the client will be important
and, in particular, the one crucial question is: "Is there
anything else you want advice about?"
ASIC has emphasised the need for advisers to use their
professional judgement in discussing the subject matter of advice
with the client. Advisers must be satisfied the subject matter is
consistent with the client's relevant circumstances and is in
their best interests. Getting the subject matter right is vital
and, without it, the adviser's best attempts to follow the safe
harbour steps will amount to nothing.
The increased importance of the scoping discussion warrants
greater consideration of Statements of Advice (SOA). The SOA should
record not just the subject matter of advice sought, but also the
adviser's consideration of other relevant issues, and the
subject matter finally agreed upon with the client.
Cross-subsidies within vertically integrated
organisations will be limited.
While FOFA's conflicted remuneration ban is widely seen as
positive for vertically integrated operators, ASIC has clearly
signalled its intention to tackle remuneration structures which
reward the recommendation of in-house products.
Performance bonuses can continue to be paid to individual
advisers under FOFA but ASIC intends to ensure they are carefully
structured to avoid incentivising conflicted advice.
ASIC guidance says product issuers may also fall foul of the
conflicted remuneration ban simply by giving personal advice about
their own products and collecting volume based management fees for
those products. This is an expansive reading of the ban and would
significantly erode the perceived vertical integration advantages.
The practical impact on the industry will depend on the extent of
ASIC's enforcement activity and the response by vertically
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.
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