Having sought to make changes to the Future of Financial Advice legislation, the Government accepted proposed amendments from the Palmer United Party in exchange for its support for passage of the revised legislation.

The intention of the Future of Financial Advice (FOFA) reforms was to address some of the perceived problems with respect to advice from the wealth management sector, and, indeed the failure of some wealth management firms. In particular, it was apparent that inappropriate advice and, in particular, inadequate disclosure in relation to financial products had been provided by financial advisers to investors. Of particular concern was advice given, and financial products sold, to non-institutional investors – retirees, mums and dads - in relation to high risk investments and conflicts of interests with respect to financial advisors pushing their own financial products without adequately disclosing commissions and rewards. FOFA sought to ensure that there was an obligation on financial advisors to put their client’s interests ahead of their own.

Best interest catch all provision

The pre-existing FOFA legislation contained what was referred to as the “best interest, catch-all provision” (Section 961B(2)(g) obligation). The intent of the provision was to ensure, in all circumstances, an advisor was acting in the best interests of their client.

The “best interest, catch-all provision” has been removed from the proposed revision of FOFA (with Palmer United Party (PUP) endorsement). The Government’s position is that financial advisors will continue to act in the best interests of their clients, and that the “best interest, catch-all provision” is not required. This is especially the case, the Government says, given that commissions have been banned on the provision of general advice and that as a result, a financial advisor will not be in a position of conflict of interest. That said, financial advisors (and other persons giving general advice – for example, a bank teller) may still receive other payments and bonuses. In any event, the Government’s position is that this should lead to lower costs with respect to financial advice.

Fee Disclosure Statement (FDS)

FOFA required that a FDS be provided to a client. Under the proposed changes, the existing obligations remain and any fees are to be disclosed and a FDS will be provided annually, if the client enters into, or has entered into, an ongoing fee arrangement after 1 July 2013.

Cooling-off period

Under the proposed FOFA changes, a client has the right to return financial products under a 14 day cooling-off period (in accordance  with  the  requirements  currently provided under Division 5 of Part 7.9 of the Corporations Act 2001).


Under the proposed FOFA changes, a client has the right to change their instructions if, for example, they experience a change in their circumstances. Such instructions must also be in writing, signed by the client, and acknowledged by the financial advisor.

Statement of Advice (SOA)

The SOA provided by advisers to their clients is to contain reference to the above and is to be signed off by the parties.

There is to be included in the SOA a “best interest” requirement for specific advice. However, the SOA does not need to address the general financial advice issue.

Financial advisors are still required to disclose in writing the commissions they will receive and represent that they are acting in the best interests of their client in relation to specific advice. That said, financial advisors can still be indirectly rewarded without disclosing such rewards to their clients. So long as the reward is not a commission, it will not need to be disclosed to a client.

Public Register

The Government has proposed to work with relevant stakeholders to establish an enhanced public register of financial advisors (including employee advisors such as those who work at a bank), which is to include a “record of each advisor’s credentials and status in the industry”.


When one considers the wealth management sector, a broader issue becomes apparent. It is estimated that the big banks control approximately 80 per cent of the financial advice market. Consequently, this has an effect on competition and, in particular, fees. On 15 July 2014, the Financial System Inquiry 2014 released its Interim Report, finding that wealth management fees are perhaps three times as high as they should be, in comparison to other similar countries.

The proposed changes do not directly address the issue of competition. Indeed it could be argued that the proposed changes enhance and reinforce the position of the big banks with respect to the wealth management sector. There is no incentive in the proposed changes for big banks to reduce the fees charged to clients. Whilst the Government has claimed that the changes should lead to lower costs with respect to financial advice, it is difficult to see how this conclusion has been reached given the models by which most banks operate.

Given the broader range of services provided by big banks, there are mechanisms by which individuals within the big banks can be rewarded without obtaining a commission. The previous version of FOFA would have prevented financial advisors working in the banks to receive any reward whatsoever for suggesting their own financial products. This, in turn, may have led to greater competition. However, the proposed FOFA changes mean that financial advisors working in banks can provide general financial product advice and still get rewarded (so long as it is not a commission).

Further, other employees are able to be rewarded for referring or selling financial products under general advice (again, so long as it is not a commission).

From a consumer protection perspective, the proposed FOFA changes do not appear to give consumers much reassurance that all advice they are receiving from a financial advisor is in their best interests. Further, specific provisions could have gone further to address those issues which had led to the initial implementation of FOFA. That said, by putting an obligation on advisors to represent that all fees have been disclosed, that a cooling off period was in place and changes were to be in writing, this will increase the rights available to a client. A client will now have the ability to take action for misleading or deceptive conduct if there is breach of those requirements and loss is suffered, and can have resort to general consumer protection provisions of existing legislation.

It is not particularly clear how the Government will develop a Register, the information it will contain and how a “record of each advisor’s credentials and status in the industry” will be reflected in the Register. Hopefully more details will be released when the revised legislation is reintroduced.