The Assistant Treasurer, Senator the Hon Arthur Sinodinos has today released exposure draft legislation and regulations for consultation to implement the reforms for the Future of Financial Advice (FOFA) legislation, originally announced on 20 December 2013. The new reforms are expected to save the financial industry an estimated $90 million in implementation costs and reduce annual compliance burdens by an average of approximately $190 million per year.
What does this mean for your business?
Key areas in which exposure draft legislation and regulations amend the current FOFA legislation include:
- Opt-in: Removing the opt-in requirements so that advisers no longer need to seek their client’s agreement every two years. An ‘opt-out’ system will apply so that any ongoing fee arrangement continues to exist unless the arrangement is terminated by either the client or the adviser.
- Annual fee disclosure: Removing the retrospective application of the fee disclosure requirement, so that advisers will not need to provide fee disclosure statements to clients who entered into a fee arrangement before the mandatory 1 July 2013 commencement date of FOFA.
- Best interests duty catch-all: Removing the catch-all provision (section 961B(2)(g)) so that advisers can be certain they have satisfied their obligations under the best interests duty.
- Scaled advice: Clients and advisers will be explicitly allowed to agree on the subject matter of advice to be provided.
- Life insurance inside super: The ban on conflicted remuneration will only apply to commissions on risk (life) insurance products inside superannuation in relation to MySuper or in circumstances where no personal financial advice has been provided to the member regarding life insurance.
- General advice: Benefits relating to the provision of general advice will be exempted from the ban on conflicted remuneration.
- Execution-only exemption: Introducing a causal link into the exemption so that benefits are permitted where no advice has been provided to the client by the individual or licensee receiving the benefit (as opposed to the licensee or authorised representative more broadly) in the previous 12 months.
- Training exemption: Broadening the existing training exemption (section 963C(c)), that provides for training in relation to providing financial product advice as a permitted non-monetary benefit, to include other forms of education and training that are relevant to the operation of a financial services business, which includes the provision of financial product advice.
- Volume-based shelf-space fees: Amending the drafting of the ban on volume-based shelf-space fees to clarify that incentive payments between fund managers and platform operators for preferential treatment of certain products on the platform “shelf” are banned.
- Intra-fund advice: A note clarifying the term ‘intra-fund advice’. The note provides that intra-fund advice is commonly used to describe financial product advice given by a trustee of a regulated superannuation fund to its members and links the commonly used term with the rules under section 99F of the Superannuation Industry (Supervision) Act 1993.
- Client paid exemption: A clarificatory note that a reference to giving a benefit includes a reference to causing or authorising it to be given. This means that the benefit may be paid directly by the client or by another party where the benefit is given at the direction of the client with the client’s clear consent.
- Grandfathering: Amending the existing grandfathering provisions to allow advisers to move between licensees and to continue to access grandfathered benefits in certain circumstances, as well as certain other clarifications to the operation of grandfathering.
- Conflicted remuneration: Amending the conflicted remuneration provisions to allow for the payment of benefits under 'balanced' remuneration structures.
- Minor technical amendments: A number of minor amendments will be made to address technical issues including in relation to the stamping and brokerage fee exemption, ensuring that the wholesale and retail client distinction that currently applies in other parts of the Act also applies in respect of the FOFA provisions, and clarify the operation of the mixed benefits provisions.
Interested parties are invited to comment on the exposure draft legislation, regulations and explanatory material. The consultation process will be open for three weeks, with submissions closing on 19 February 2014.
The Government will implement time sensitive measures through regulations to the extent legally possible, with amendments to be subsequently made in the primary legislation. The interim regulations will be repealed once the legislative amendments have been passed, while those amendments best addressed via regulations will remain in place.
Following the consultation process, the Government anticipates that regulations will be made at the end of March 2014 and that a Bill will be introduced into Parliament in the 2014 autumn sitting period with passage scheduled for the winter sitting period.