On 20 December 2013, the Assistant Treasurer, Senator the Hon Arthur Sinodinos, announced reforms to the Future of Financial Advice (FOFA) legislation.
The Government has stated that, while it supports the principles of FOFA, it believes the previous Government's reforms went too far, creating unnecessary complexity, imposing significant burdens on industry and reducing the availability and increasing the cost of advice to consumers.
The Government's announced amendments include:
Removing the 'opt-in' requirement
Removing the requirement for advisers to request their clients renew their advice agreements every two years if clients are paying ongoing fees.
Amending the annual fee disclosure requirement
Removing the requirement for advisers to provide annual fee disclosure statements to clients who entered into a fee arrangement before 1 July 2013.
Removing the catch-all provision from the 'best interests duty'
Removing the requirement in section 961B(2)(g) of the Corporations Act 2001 (Cth) (Corporations Act) for advisers to take any step that, at the time that advice is provided, would reasonably be regarded as being in the best interest of the client, given the client's relevant circumstances.
This will help advisers to be certain they have satisfied their obligations under the best interests duty in section 961B of the Corporations Act.
Explicitly allow scaled advice
Amending the best interest duty to explicitly allow for the provision of scaled advice.
This will enable advisers and clients to agree on the scope of advice to be provided. In particular, it will enable 'one-off advice'.
Exempting general advice from conflicted remuneration
Exempting benefits relating to the provision of general advice from the ban on conflicted remuneration.
Introduce a casual link into the execution-only exemption
Introduce a casual link into the exemption so that benefits are permitted where no advice has been provided to the client by the individual performing the execution service (as opposed to the licensee or authorised representative) in the previous 12 months.
Amending the conflicted remuneration provisions
Amending the conflicted remuneration provisions to allow for the payment of benefits under a 'balanced' remuneration structure, expand the basic banking exemption to include all simple (i.e. Tier 2) banking products and permit the payment of performance bonuses that are calculated by reference to remuneration which is exempt from the ban on conflicted remuneration.
Amend the existing grandfathering provisions
Amending the existing grandfathering provisions to allow advisers to move between licensees and to continue to access grandfathered benefits in certain circumstances.
Amendments will also be made to clarify the operation of the grandfathering arrangements with respect to the sale of financial planning businesses, superannuation to pension switches under multi-product offerings, and employed advisers becoming self-employed advisers.
Life insurance inside super
The ban on conflicted remuneration will only apply to commissions on risk (life) insurance products inside superannuation in circumstances where no personal financial advice about these products has been provided (i.e. where automatic coverage is provided inside a default (MySuper) superannuation fund).
Broaden the training exemption
Broaden the existing training exemption, that provides for training in relation to providing financial product advice as a permitted non-monetary benefit, to include other forms of training that are relevant to conducting a financial services business.
Amend the drafting of the ban on volume-based shelf-space fees
Clarify that incentive payments between fund managers and platform operators for preferential treatment of certain products on the platform 'shelf' are banned.
Define intra-fund advice
The definition of intra-fund advice will be referenced in the FOFA provisions.
Amend the existing stockbroking-related exemptions
Clarify the application of the stamping fee exemption to initial purchasing offer arrangements and clarify the application of the brokerage fee exemption to products traded on the ASX24.
Minor technical issues
A number of minor amendments will be made to address technical issues including clarification of the client-pays exemption and consequential amendments to the application of the wholesale and retail client distinction under FOFA.
Australian Securities & Investments Commission response
The Australian Securities & Investments Commission (ASIC) has said that it will take a facilitative approach to the announced amendments. While ASIC will take enforcement action where it sees deliberate breaches of the new requirements or failure to make reasonable efforts to comply, its focus during the facilitative period will be on education and assistance. ASIC has stated that it will not take enforcement action in relation to the specific FOFA provisions that the Government is planning to repeal. For example, ASIC has stated it will not take action for breach of current section 962S of the Corporations Act which requires fee disclosure statements to be provided to retail clients with ongoing fee arrangements entered into before 1 July 2013. ASIC will review and consult on its regulatory guides on FOFA once the announced amendments have been made.