On Monday night, Treasury released the Corporations
Amendment (Streamlining Future of Financial Advice) Regulation
2014, which makes some significant changes to the FOFA reforms
that commenced last year. Some of the most controversial amendments
were to the 'best interest' obligations. So what were the
main changes to the best interest obligations?
Removal of the 'catch-all' provision
The best interest duty established by subsection 961B(1) of the
Corporations Act 2001 remains unaltered in the legislation –
advisers must still act in the best interests of the client in
relation to the advice. However, the regulations remove the
controversial 'catch-all' provision from the list of steps
an advice provider may take to show that they have satisfied the
best interest obligations, also known as the 'safe harbour'
steps (subsection 961B(2)).
The previous 'catch-all' provision provided that, in
addition to the other steps set out in subsections 961B(2)(a)-(f),
the adviser must also prove they had 'taken any other step
that, at the time of the advice is provided, would reasonably be
regarded as being in the best interests of the client, given the
client's relevant circumstances.'
It is important to note that the 'catch-all' provision
still applies to advice provided before 1 July 2014 and after 31
December 2015. Further, other related obligations remain unchanged
in the legislation, including the requirement for advice to be
appropriate, to provide warnings if there is any incomplete or
inaccurate information, to prioritise the client's interests
and to ensure representatives are complying with the law.
Additional exemptions for agents or employees of ADIs
Currently, an agent or employee of an ADI is not required to
satisfy the 'safe harbour' steps in subsections
961B(2)(d)-(g) if the advice relates solely to a basic banking
product or general insurance product. The regulations expand this
exemption to consumer credit insurance products (in some
circumstances), and also broaden the definition of a 'basic
banking product' to include non-cash payment facilities that
are not related to a basic deposit product.
Facilitating scaled advice
To satisfy the best interest obligations, advice providers must
still identify the objectives, financial situation and needs of the
client. However, the regulations insert a number of provisions that
facilitate scaled advice by clarifying that:
an adviser is able to agree with their client regarding the
subject matter of the advice sought;
any investigations into the client's circumstances are only
those that would reasonably be considered as relevant to the agreed
subject matter; and
the best interest obligations apply to the agreed subject
Where to from here?
The changes to the FOFA best interest obligations will not only
affect financial planners. The changes will affect all financial
services licensees that provide personal financial product advice
to retail clients including banks, superannuation funds,
responsible entities, foreign exchange dealers and CFD/margin forex
We have prepared a
one page MindMap which sets out the best interest obligations
and related provisions.
It is important to note that the Senate has the power to
disallow the regulations, so further changes may occur. We will
provide updates on our blog if the regulations are disallowed by
We will also be publishing a number of blogs outlining the other
changes introduced by the regulations, so stay tuned!
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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