In 2009, a Parliamentary Joint Committee inquiry was conducted into financial products and services in Australia following the collapse of companies including Storm Financial and Opes Prime. In response, the Government introduced the Future of Financial Advice (FoFA) reforms which commenced on 1 July 2012, with the view of improving investor protection and the quality of financial advice.
The reforms are voluntary until 1 July 2013. The reforms only apply to financial advice provided to retail clients.
The legislation implementing the reforms comprises two separate but related bills:
- Corporations Amendment (Future of Financial Advice) Bill 2011
Opt-in and Fee Disclosure provisions
- Applies if personal advice is provided to clients who are paying ongoing fees for 12 months or more;
- Advisers must request retail clients to opt-in or renew their advice agreements every two years; and provide an annual statement outlining fees and charged and services provided in the previous 12 months.
The effect is to increase the level of regular contact the adviser has with their client and demonstrate the value of services they are providing.
The Bill also enhances ASIC's licensing and banning power.
- Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011
This Bill imposes a "best interests" duty.
The Bill also bans conflicted remuneration as follows:
- Licensees and authorised representatives will not be allowed to give or receive payments or non monetary benefits if they could reasonably be expected to influence financial product recommendations or advice given to retail clients;
- Payments made under arrangements or contracts entered into before the reforms commence will not be affected.
These prohibitions apply to both personal advice and general advice (advice on products which are not tailored to an individual's personal circumstances).
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.