Australia: The Future of FoFA

Investment Management Alert
Last Updated: 23 June 2014
Article by Jim Bulling, Gabrielle Palmieri and Daniel Knight

In light of today's announcements from Mathias Cormann, Australia's Minister for Finance, the future of FoFA is becoming clearer.

The Future of Financial Advice (FoFA) legislation has been surrounded by uncertainty since its inception. Originally intended to commence on 1 July 2012, compulsory compliance was deferred by 12 months. With a number of changes to regulations passed only days before compliance became mandatory on 1 July 2013, the industry gratefully embraced the Australian Securities and Investment Commission's (ASIC) 12 month facilitative approach to FoFA. With a change in government shortly after, further uncertainty was created when the new Liberal Government released proposed amendments to FoFA, which still remain unpassed. The suggested amendments are intended to remove some of the red tape created by the FoFA legislation in its current form and to provide certainty in some areas, such as the application of grandfathering provisions in respect of the ban on commissions.

In the wake of significant industry debate around the proposed amendments, the Senate referred the proposed bill to the Senate Economics Legislation Committee (Committee) which provided its report on 16 June 2014. The Committee's overall recommendation was that, subject to some suggested changes to the bill (such as redrafting of the conflicted remuneration provisions), it should be passed by Parliament. The Committee also recommended that the Government utilise the Explanatory Memorandum to provide greater clarity in certain areas, such as spelling out the best interests duty.

Today the Minister for Finance released a statement outlining the Government's response to the Committee's report. Mr. Cormann indicated that the Government intends to press on with its proposed amendments to FoFA, with some minor adjustments. To effect key changes as soon as possible, the Government will implement certain changes via regulations set to commence on 1 July 2014, for those amendments for which this is legally possible. This does not, however, entirely remove the uncertainty surrounding FoFA as regulations may be disallowed by Parliament. Additionally, there are further amendments which Mr. Cormann indicates will only occur via the passage of a bill, which is unlikely before 1 July 2014.

As ASIC's general facilitative approach draws to a close before passage of the bill, the financial services industry is left grappling with a number of uncertainties in relation to the implementation of FoFA. This will continue until the Government's amending bill is passed. There are, however, steps that licensees and authorised representatives (Advice Providers) can take now to ensure they are in the best position possible.

ASIC's No-Action Position

In response to the Government's proposed amendments to FoFA, ASIC announced a no-action position on 20 December 2013. The no-action position covers those existing FoFA provisions that the Government is intending to repeal (such as the requirement for clients in ongoing fee arrangements to opt in every two years, and the requirement to provide fee disclosure statements to clients who entered into an arrangement with the Advice Provider prior to 1 July 2013).

Importantly, it may not cover all of the Government's proposed amendments because any amendment that is introduced as a new provision or a drafting amendment will not expressly fall within the scope of the no-action position. It is not clear how ASIC will approach these issues. The no-action position does not have a specified expiry and we expect it to remain in place until amending legislation and regulations are passed, with appropriate adjustments for any changes made to the drafts previously released by the Government. The Government's response to the Committee's report indicates that, at least in relation to the changes which may be made by regulation, this should occur in the next few weeks.

Many in the industry are likely to be relying on ASIC's no-action position in relation to at least some of the provisions flagged for repeal. As both the likely date for amendments and the end of ASIC's general facilitative approach come closer, there are two things Advice Providers should be considering:

  • the parameters of the no-action position and whether they have relied on it only in relation to those provisions that have been flagged for repeal
  • whether they have the necessary processes and systems in place in the event that the final amendments are different to what the Government has already announced.

Where Advice Providers identify any issues with how they have applied the no-action position or feel they may face difficulties in complying with FoFA requirements in the event that the no-action position is withdrawn, they should prepare solutions which can be implemented on short notice if needed.


The FoFA 'grandfathering' provisions enable Advice Providers to continue to receive or pay conflicted remuneration where it is provided under an arrangement that was entered into prior to 1 July 2013.

The current language of the grandfathering provisions imposes a number of limitations on the circumstances in which Advice Providers are able to rely on grandfathering of benefits that would otherwise be classified as conflicted remuneration. Many of these limitations will have an impact from 1 July 2014.

Advice Providers should ensure they are prepared for this and have considered alternative methods for receiving such benefits.

Benefits provided under employment contracts

Benefits that constitute conflicted remuneration which are paid under employment contracts entered into prior to 1 July 2013 are grandfathered until 30 June 2014. After this date, a benefit paid under an employment contract will cease to be protected by the grandfathering provisions regardless of when the employment contract was entered into. AFSL holders should examine whether any payment that could be considered conflicted remuneration, which is paid pursuant to an employment contract from 1 July 2014, is carved out or exempt from the conflicted remuneration provisions, otherwise than by grandfathering, for example under a balanced scorecard approach or the client paid exemption.

Benefits provided in relation to products acquired from 1 July 2014

The grandfathering provisions that relate to benefits given on the acquisition of a financial product differ depending on whether the person giving the benefit is acting in the capacity of a platform operator or in some other capacity.

In both cases, benefits that constitute conflicted remuneration which are payable pursuant to arrangements entered into since 1 July 2013 have not been permissible since that date. However, from 1 July 2014, even for benefits paid under arrangements entered into prior to 1 July 2013, grandfathering will fall away in certain circumstances.

In the case of platform operators, if the benefit relates to the acquisition of a financial product by a person who opened (or provided instructions to open) an account on the platform after 1 July 2014, it will not be grandfathered.

In the case of a person other than a platform operator, if the benefit relates to the acquisition of a financial product or the provision of a financial service from 1 July 2014, it will also not be grandfathered from this date.

Advice Providers should ensure they have carefully reviewed all benefits to determine whether the grandfathering provisions will continue to apply.

Grandfathered benefits where there is a change in licensee

One important amendment proposed by the Government is a broadening of the grandfathering provisions in relation to authorised representatives who change licensees, or Advice Providers who sell their business.

Under the current draft language of FoFA, the grandfathering of benefits paid under arrangements entered into prior to 1 July 2013 may fall away in circumstances where it will result in a 'new' arrangement being entered into by the new licensee or the purchaser of the business. This has been an issue for financial planning practices, which faced risking their grandfathered commissions if they were to switch dealer group or licensee. The Government's proposed changes will address this by amending the regulations to specify that:

  • in circumstances where an authorised representative changes licensees, a benefit that would otherwise be grandfathered will continue to be so
  • a person who purchases a business has the same rights the seller would have retained had the seller not sold the business.

These proposed amendments were broadly welcomed by the industry but do not fall within the scope of ASIC's no-action position. Mr. Cormann's statement indicates that the Government intends to make these changes via regulations and they will take effect from 1 July 2014. Authorised representatives and persons thinking of purchasing business should take these proposed changes into account and, in particular, consider the timing of any such action. For any period between the time at which they take that action and the time these regulations are passed (for example, if the practice changes licensee before the amendments are passed), certain benefits may not be grandfathered and therefore may not be permissible unless another exemption applies. When relying on these changes to be made by regulation, Advice Providers may wish to consider the period during which regulations may be disallowed.

Best Interests Duty Safe Harbour Steps

The 'best interests duty' simply requires an adviser to act in the best interests of the client in relation to any personal advice the adviser is providing. In order to assist advisers in complying with such a broad duty, the FoFA provisions set out a series of safe harbour steps.

These safe harbour steps require advisers to consider relevant information and personal circumstances, the adviser's expertise and appropriate products. A 'catch-all' step also requires the adviser to take "any other step that...would reasonably be regarded as being in the best interests of the client". If an adviser can demonstrate he or she has complied with each of the safe harbour steps, he or she will be deemed to have complied with the best interests duty. This also means that if an adviser is unable to demonstrate that he or she has complied with one or more of the safe harbour steps, it will be difficult to convince the regulator or any forum in which a complaint is brought that the adviser acted in the client's best interest.

The legislation does not include any requirement to maintain evidence that an adviser has complied with each of the safe harbour steps. However, in the lead up to 1 July 2014 and the end of ASIC's facilitative approach, Advice Providers should carefully consider the processes and systems they have in place to support individual advisers in evidencing each of the actions they have taken to meet the safe harbour steps. This may include updating Statement of Advice templates, improving file note storage and additional training for advisers.

The removal of the very broad catch-all safe harbour step (in section 961B(2)(g) of the Corporations Act 2001) is effected by the proposed amendments and was highlighted by the Government as one of the key amendments to FoFA. This amendment was also supported by the Committee in its report and Mr. Cormann's statement makes it clear that the Government still intends to make this change. Currently the ASIC no-action position will treat the catch-all step as having been repealed, although this will not prevent a person (other than ASIC) in taking action against an Advice Provider for failing to take all steps reasonably required.

In reviewing the methods by which compliance with the safe harbour steps will be evidenced, Advice Providers should take the catch-all step into consideration in the event that this amendment to the legislation is not passed.

Staying Up to Date With the Changes

One of the most important matters for Advice Providers to address in the lead up to 1 July 2014 and beyond is to ensure that they keep up to date with FoFA developments. Mr. Comann's statement provides insight into the Government's intention moving forward, however the final outcome will depend on the Government's support in Parliament for its proposed amendments. Many of the proposed amendments will ease the burden Advice Providers face under the current FoFA legislation and Advice Providers will want to be in a position to take advantage of them if they are passed. For example, if suggested changes to the stamping exemption are passed, Advice Providers may be able to receive stampings fees in relation to Real Estate Investment Trusts (REITs) and Listed Investments Companies (LICs).

In addition to the rolling back of certain aspects of FoFA, some of the proposed amendments are technical changes and Advice Providers should ensure they are across these changes and any impact they may have on the licensee's FoFA solutions. Many of the changes of this nature are intended for clarification purposes and not as substantive changes, but it would be prudent to follow developments related to these issues.

One area of particular interest to many Advice Providers is the general advice exemption from the ban on conflicted remuneration. This exemption has been criticised as allowing non-personalised financial product advice to be remunerated through volume based benefits, including commissions. Mr. Cormann's statement indicates that the exemption is intended to apply more narrowly than this. These comments will be welcomed as this proposed amendment has caused heated debate in the industry, with many stakeholders arguing that it will encourage advisers to give general rather than personal advice and reopen the door for the widespread payment of commissions. The Committee recommended that the Government consider redrafting the provisions governing conflicted remuneration, using the Explanatory Memorandum to clarify the Government's intention. In addition, the Committee recommended that the Government make the distinction between the terms 'information', 'general advice' and 'personal advice' sharper. This could have significant implications beyond FoFA. In any event, the provision of 'information' only is not subject to the ban on conflicted remuneration. Mr. Cormann's statement indicates that there will be further changes to the proposed amendments which the industry has not yet seen. These include restrictions around when commissions can be received, including in relation to general advice. Until the amendments are passed, under the current language of the conflicted remuneration provisions, general advice remains subject to the ban.

Advice Providers should be actively watching for updates and seeking legal

advice where they are unsure of the impact of any changes.


The industry is eagerly awaiting resolution on the proposed amendments to the FoFA legislation, which may depend in large part on how the Government seeks to implement its amendments.

Until then, Advice Providers must do their best to operate within the uncertain environment they face. Doing so means being aware of the existing FoFA law, the potential impact of any changes and staying on top of the movements as they occur.

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.

K&L Gates has been awarded a 2012 EOWA Employer of Choice for Women citation acknowledging our commitment to workplace diversity.

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”

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
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 you may opt out by clicking here

    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.

    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.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    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.

    By clicking Register you state you have read and agree to our Terms and Conditions