NEED TO KNOW
The much anticipated proposals to unwind parts of the Future of Financial Advice (FoFA) legislative regime have been announced by the Coalition Government. The announcement is likely to have a mixed reaction from the industry with many having already invested heavily in getting their systems and procedures ready for FoFA. Click here for a link to the Government's announcement.
SUMMARY OF THE PROPOSED AMENDMENTS TO FOFA REGIME
The Coalition Government maintains that the proposals aim to increase certainty in the financial advice industry, and to reduce costs and red tape for small businesses, financial advisers and consumers who access financial advice. The proposals are far-reaching and the devil will be in the detail.
Some commentators have already criticised the Coalition's decision to unwind parts of the FoFA legislative regime. It is difficult to argue against the policy rationale for FoFA which is centred on restoring integrity in the financial planning industry and allowing investors to obtain financial advice that is in their best interests. Indeed, many parts of the financial planning industry have incurred considerable costs in getting ready for FoFA as legislated by the previous Government.
The Coalition Government's proposals resemble comments made by the Coalition in response to the 2012 Parliamentary Joint Committee inquiry into FoFA. A list of the proposals is summarised in the table below.
| Removal of the 'opt-in' requirement | Remove the opt-in requirements so that advisers no longer need to seek their client's agreement every two years. |
| Annual fee disclosure | Fee disclosure statements will only need to be provided to new clients. |
| Greater certainty to the best interests duty | Remove the catch-all provisions (eg s961B(2)(g) of the Corporations Act). |
| Scaled advice | Amend the best interest duty to allow for the provision of scaled advice. |
| Grandfathering | Amend grandfathering provisions to allow advisers to move between licensees whilst continuing to access grandfathering benefits. |
| Exempting general advice from conflicted remuneration | The ban on conflicted remuneration will only apply to personal financial advice. |
| Life insurance inside super | The ban on conflicted remuneration will only apply to commissions on risk (life) insurance products inside superannuation when no personal financial advice about these products has been provided. |
| Other amendments to conflicted remuneration |
Amendments to:
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| Execution-only exemption | Introduce a causal link into the exemption so that benefits are permitted where no advice has been provided to the client by the individual performing the execution service in the previous 12 months. |
| Training exemption | Broaden the existing training exemption to include other forms of training relevant to conducting a financial services business. |
| Volume-based shelf-space fees | Clarify that incentive payments between fund managers and platform operators for preferential treatment of certain products on the platform "shelf" are banned. |
| Define intra-fund advice | The definition of intra-fund advice will be referenced in the FoFA provisions. |
| Stockbroking | Clarification of the existing stock-broking exemption to include the application of the stamping fee exemption to initial purchase offer arrangements. |
In additional to the above, minor amendments will be made to the FoFA legislation to address technical issues and clarify the legislation. The Government also proposes to make consequential amendments to the application of the wholesale and retail client distinction.
It remains to be seen whether the proposals will be able to strike an adequate balance between the interests of investors and financial planners to bring about the "certainty and stability" flagged in the Government's announcement.
NEXT STEPS
No draft legislation has been provided at this stage but it is expected that any amendments will follow a consultation process in 2014.
We will report on further developments in this area, and are available to assist you or provide you with further information. Please contact a member of our team listed in this publication.
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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