The Assistant Treasurer, Senator the Hon Arthur Sinodinos, today announced reforms to the Future of Financial Advice (FOFA) legislation.
"Consistent with the Coalition's election commitment to reduce compliance costs for small business, financial advisors and consumers who access financial advice, the Government will undertake a package of amendments to improve FOFA" said Senator Sinodinos.
The Government supports the principles of FOFA, however 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.
"Our consultation with industry indicates that the Abbott Government's FOFA reforms will save the financial services industry an estimated $90 million in implementation costs and reduce annual compliance burdens by an average of approximately $190 million per year" Senator Sinodinos stated.
Key elements of the Government's amendments include:
Removing the 'opt-in' requirement
The Government will remove the need for clients to complete unnecessary paperwork in order to continue their arrangement with their adviser. This requirement adds a burdensome layer of red tape to industry and does not provide any significant consumer protection.
Annual fee disclosure
The Government will streamline the existing requirements to ensure that the requirement to provide fee disclosure statements only applies to new clients from 1 July 2013. Applying this requirement to existing clients is overly onerous as the fee disclosure arrangements are significantly more costly to apply to pre-1 July 2013 clients.
Removing 'catch-all' from the best interests duty
The Government will amend the best interests duty to ensure that advisers can be confident that they have provided compliant advice to their clients.
The existing catch-all arrangements have left advisers uncertain as to whether they have satisfied the best interests duty.
Scaled advice
The Government will amend the best interests duty to explicitly allow for the provision of scaled advice. The uncertainty caused by the current arrangements have prevented consumers from being able to access affordable advice that is specifically tailored to their needs. The changes will enable advisers to agree on the scope of advice to be provided with their clients, whilst ensuring that the advice is still appropriate for the client.
This reform will enable consumers to receive "one-off advice" from financial advisers.
Exempting general advice from conflicted remuneration
The Government will ensure that the ban on conflicted remuneration only applies to personal financial advice. General advice is provided under a wide range of circumstances and often educates and informs clients, providing many clients with financial information they would otherwise be unable to afford.
Applying the ban on conflicted remuneration to general advice risks limiting the availability of this type of advice and unnecessarily burdens industry by capturing staff not directly involved in providing advice to clients.
Grandfathering
The Government will amend the existing grandfathering provisions to ensure that advisers can move between licensees whilst continuing to access grandfathered benefits. The current grandfathering provisions are reducing competition in the industry by impeding the movement of advisers between licensees.
"I am confident that these reforms will ensure that the integrity of the financial advice framework is maintained whilst delivering a system that offers affordable and accessible financial advice to the Australian community," said Senator Sinodinos.
A detailed summary of the Government's amendments is at Attachment A.
Attachment A
| Opt-in: Remove the opt-in requirements so that advisers no longer need to seek their client's agreement every two years. |
| Annual fee disclosure: Remove 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. |
| Catch-all: Remove the catch-all provision (s961B(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 scope of financial advice to be provided, whilst ensuring advice is still appropriate for the client. |
| 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. |
| General advice: Benefits relating to the provision of general advice will be exempted from the ban on conflicted remuneration. |
| Execution-only exemption: Introduce a causal 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 more broadly) in the previous 12 months. |
| 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. |
| Volume-based shelf-space fees: Amend 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. |
| Define intra-fund advice: The definition of intra-fund advice will be referenced in the FOFA provisions. |
| Grandfathering: Amend the existing grandfathering provisions, that exempt certain benefits under pre-existing arrangements from the ban on conflicted remuneration, 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. |
| Conflicted remuneration: Amend the conflicted remuneration provisions to:
|
| Stockbroking: Amend the existing stockbroking-related exemptions to:
|
| Minor technical amendments: 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. |