The Regulation gives effect to time-sensitive FOFA changes until the measures contained in the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 can be passed by both Houses of Parliament, taking effect from 1 July 2014 until 31 December 2015 (Period).

The Regulation has the following effects, relevant to the Superannuation Industry:

  • Best Interests Duty:
    • introduces the prescribed step that the provider must prove that it has identified the client’s objectives, financial situation and needs that the client discloses (subject to any agreement to scale the advice) in substitution to the current requirement under the Corporations Act, section 961B(2)(a), that specifically requires the objectives, financial situation and needs to be identified via instructions; and
    • the provider is not required to prove whether he or she has taken any further step that would reasonably be regarded as being in the best interests of the client (the Corporations Act, section 961B(2)(g) “catch-all” provision);
  • Fee Disclosure:
    • fee recipients are not required to provide a renewal notice to clients in respect of any ongoing fee arrangement entered into during the Period;
    • fee recipients are not required to provide a fee disclosure statement to clients in respect of any ongoing fee arrangement entered into before 1 July 2013 up until the Period’s cessation;
  • Conflicted Remuneration:
    • performance bonuses (based on sales) due to recommendations made by employees and agents of licensees are not considered to be “conflicted remuneration” provided that the bonus is low in proportion to the individual’s total remuneration and the bonus is calculated by reference to other factors that outweigh the volume of sales;
    • monetary benefits given to a provider of general advice, who is an employee of a licensee or authorised representative, is not considered to be “conflicted remuneration” if (among other factors):
      • the benefit is neither:
        • a recurring benefit because the person has given general advice; or
        • payment made solely because a financial product was sold (commissions); and
      • during the previous 12 months before the benefit was given, the person did not give financial product advice to a retail client, other than general advice and/or personal advice in respect of basic banking products and/or consumer credit insurance; and
      • the product sold is either a product issued or sold by the licensee or a related body corporate (or licensed to be sold by the licensee).
  • The Government has announced that it will make further regulations within 90 days to ensure the following Corporations Act requirements are explicitly listed in Statements of Advice provided by financial advisers to their clients and signed off by both:
    • the adviser is required to act in the client’s best interests and prioritise the client’s interests ahead of its own;
    • any fees will be disclosed and the adviser will provide a fee disclosure statement annually;
    • the client has the right to return financial products under a 14-day cooling-off period; and
    • the client has the right to change his or her instructions to the adviser, if he or she experiences a change in their circumstances.