In April 2013 we considered the potential impact of the Future of Financial Advice (FoFA) reforms on claims, and have watched subsequent developments with interest.
During 2014, the Government sought to streamline the regulations and reduce compliance costs by several proposed amendments to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 (the Bill).
In November 2015, the Senate passed a motion regarding the Bill, effectively disallowing a number of the proposed amendments, and otherwise implementing minor and technical changes. The full list of the amendments can be found here.
Relevantly, the Senate removed the proposed amendments regarding the best interests duty, scaled advice, a conflicted remuneration carve out for general advice and changes to the Statement of Advice requirements.
The Senate’s decision
In particular, the Senate said “no” to:
- Proposed changes to the best interests duty;
- A scaled advice provision, seeking to provide clarity on the ability for a client and adviser to agree on the subject matter of any scaled advice sought;
- Attempts to remove the opt in requirement for continuing an ongoing fee arrangement;
- A targeted general advice provision which would have deemed benefits on general advice not to be conflicted remuneration provided certain conditions are met;
- Proposed changes to the execution only provision, definition of “volume based shelf space” and changes seeking to allow the payment of mixed benefits; and
- Proposed changes to the Statement of Advice requirements.
The amendments that were passed were relatively minor, including amending the short title of the Bill1 and extending time frames for advisers to provide renewal notices and fee disclosure statements in certain circumstances.
So where does this leave us?
The Senate’s disallowance of the amendments leaves the best interests duty as stated originally in section 961B of theCorporations Act 2001, which provides for:
- A statutory obligation for the advisor to act in the best interests of the client when providing advice (the best interests duty); and
- A “safe harbour” which is a list of steps that, if taken, mean that an adviser will be considered to have satisfied the best interests duty.
Otherwise, the Senate’s position seems likely to signal the end of the FoFA reforms for the time being, hopefully providing some stability for financial service professionals and their underwriters, claims managers and brokers. We expect, however, that it will still be some time before the impact of the reforms on advice practices, and ultimately on claims, can be assessed.