The Future of Financial Advice (FOFA) reforms came into effect
on 1 July 2013, and introduced changes that among other things
banned conflicted remuneration (a benefit that might reasonably be
expected to influence the financial advice given by advisers to
their retail clients), required advisers to act in the best
interests of their clients, and required advisers in ongoing
relationships (of more than a year) with those clients to give a
fee disclosure statement every year and the opportunity to renew
that relationship (known as the opt in requirement) every two
The Abbott Government's changes to FOFA were announced on
Friday 20 June. After months of debate and a Senate Committee
Inquiry, and despite an uncertain grip on control of the Senate,
the Government has resolved to proceed with the partial rollback of
the FOFA reforms that it announced prior to the election.
There has been much media coverage of these changes, not all of
it accurate. Here are the facts.
The implementation of these changes took effect by regulation on
1 July 2014 in two categories. Some of these regulations are to be
replaced by legislation and will sunset on 31 December 2015. Others
will remain in force as regulations.
The following changes, now in force, will be replaced by
legislation by 31 December 2015:
The 'catch all' provision in the s961B(2) 'best
interests' safe harbour is removed, although advisers'
obligation to act in the best interests of clients remains
unchanged. There has been some confusion in how this change is
reported. The current arrangements provide for a safe harbour under
which advisers are deemed to have acted in the best interests of
their clients if they have taken a certain steps. The catch all
provision is an element of the safe harbour that deems an adviser
to have acted in the best interests of their client, if apart from
the specified actions they have "taken any other steps to
act" in the best interests of the client. The Government
argues that this redundant repetition increases uncertainty about
the scope of the safe harbour and is therefore to remove it;
A note is added to the existing exemption from the ban on
conflicted remuneration for amounts given by (or a the direction
of) the client to clarify that these payments must be given out of
the clients own money;
The obligation to give fee disclosure statements is restricted
to clients who entered the fee arrangement with their adviser after
30 June 2013;
The "opt in" requirement under which advisers must
renew ongoing fee arrangements with clients every two years, is
Advisers and their clients will be able to agree on the scope
of the advice to be provided – the adviser's best
interest duty will then be limited to that scope (although in our
view this is already the case); and
The ban on conflicted remuneration will still be lifted in
relation to general advice given by employee advisers provided the
employee has not given personal advice in the previous twelve
months, and the financial product in question is issued or sold by
In addition, under these regulations:
permit incentive payments based on a balanced scorecard of
criteria which do not conflict advice. This is already a mechanism
contemplated by ASIC in Regulatory Guide 246; and
extend the current grandfathering arrangements to:
permit advisers to move from one licensee to another, and
retain grandfathering protection for remuneration payments received
in respect of clients they take with them; and
extend by 12 months the time at which grandfathering ceases for
benefits paid to an employee under an agreement with their
employer. Generally this means that previous bonus arrangements
under existing contracts can continue until 1 July 2015.
Finally, the Bill currently still before Parliament includes
changes, not to be implemented first by regulation, that will
increase the time advisers have to send fee disclosure statements,
and clarify the operation of volume-based shelf space fees, among
This is the current law, but the future of the regulations
remains uncertain, as they remain subject to disallowance in the
Senate. If that happens, the law will revert to what it was before
the regulations were made.
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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