The Federal Government has released draft legislation and regulations to implement changes to the Future of Financial Advice (FOFA) legislation. These changes have been anticipated since the Federal Government’s pre-Christmas announcement that changes would be made to the FOFA laws to reduce compliance costs for the financial services industry.
Interested parties have been invited to comment on the proposed changes. The closing date for submissions is 19 February 2014.
Some of the key proposed measures include:
Ban on conflicted remuneration
- Exclusion of general advice from the ban on conflicted remuneration.
- Introduction of a ‘balanced scorecard’ exemption.
- Widening the exemption for employees and agents of ADIs, including allowing for benefits to be paid in relation to consumer credit insurance.
- Clarification that for the client-paid exemption to apply, if a benefit is given by another party at the direction of the client, the benefit must be given with the client’s clear consent.
- Broadening the grandfathering rules in certain circumstances to enable advisers to move between licensees while retaining grandfathered benefits.
- Applying the execution-only exemption so that benefits are allowed where no personal advice has been given by the individual receiving the benefit in the last 12 months.
- Widening the education and training exemption for soft dollar benefits to include other forms of education and training relevant to carrying on a financial services business (no longer limited to education and training in relation to the provision of financial product advice).
- Limiting the ban on conflicted remuneration that applies to life risk insurance products within superannuation, to commissions on such products in relation to MySuper or if no personal financial advice has been provided to the member regarding life risk insurance.
Ban on volume-based shelf space fees
- Redrafting the ban by defining the banned fees as fees that could reasonably be expected to influence the platform operator to increase the number or value of products included on the platform or influence the operator to give preferential treatment to the fund manager’s financial products.
Ongoing fee arrangements
- Removal of the opt-in notice requirement that was originally intended to stop clients of advisers paying for services they do not use or value.
- Removal of the annual fee disclosure requirement for existing clients at 1 July 2013.
Best interests duty
- Removal of the ‘catch-all’ provision in the best interests duty ‘safe harbour’ (that is, the steps an adviser may take to satisfy the best interests duty).
- Specifically allowing the client and adviser to agree on the subject matter of advice to be provided to facilitate the giving of scaled advice (ie. advice that is limited in scope).