Publications / Financial Services
The future of financial advice (FOFA) reform package has seen a flurry of activity over the past month, with the Parliamentary Joint Committee on Corporations and Financial Services (PJC) and the Senate Economics Legislation Committee (SELC) releasing their reports and recommendations on the FOFA reforms as well as further activity by the Government in response to these inquiries.
McCullough Robertson Partner, Tim Wiedman, surveys the FOFA landscape post- the PJC and SELC recommendations and summarises recent Government developments on the FOFA reforms.
PJC and SELC recommendations
The PJC has made 15 recommendations and the SELC ten recommendations as a result of their reviews, which involved a consideration of numerous submissions from industry groups, consumer groups and other interested parties and hearings before the committees. For those hoping for wholesale changes following the PJC and SELC reviews then there is generally bad news and disappointment (with the exception of the timeshare industry). The recommendations primarily request that further information or clarification be provided or certain issues be monitored, rather than significant changes to the FOFA reforms.
The recommendations can be broadly divided into three categories:
- clarifications and further detail, and
- monitoring and review.
The following table* summarises the recommendations made by the PJC and SELC.
The PJC also recommended a minor update to a footnote to the explanatory memorandum to the FOFA bills and the other SELC recommendation was to pass the FOFA bills (subject to the implementation of its other recommendations).
The timeframe for commencement of the FOFA reforms was an issue highlighted as a key concern by many parties who provided a submission to the PJC and SELC. In response to these concerns, the Government has granted a concession to its highly publicised position of a 1 July 2012 commencement date for the FOFA reforms.
The 1 July 2012 commencement date will be retained. However, the Government has proposed a 12 month transition period with the FOFA reforms to only become mandatory from 1 July 2013.
Government amendments to FOFA legislation
Presumably in response to some of the technical amendments proposed to the PJC and the SELC, the Government made amendments to the FOFA bills. The amendments are mostly minor and technical changes to clarify the operation of certain provisions. However, there are two potentially significant and unexpected amendments which are explained below.
Exemption from obligation to provide annual fee disclosure statement and obtain consent to charge ongoing fees
The Government has introduced a new provision to enable ASIC to exempt a person from the requirement to provide an annual fee disclosure statement and obtain a client’s consent to charge ongoing fees where the person is bound by a code of conduct approved by ASIC.
It will be interesting to see which industry groups are able to agree a code of conduct with ASIC and exempt their members from this requirement as many submitters to the PJC and SELC advocated for the removal of the fee disclosure statement obligation and opt in requirements.
Fee disclosure statement – disclosure of future fees and services
The draft FOFA legislation had required fee disclosure statements to include, among other items, the fees the adviser expects the client to pay in the next 12 months, the services the client is entitled to receive in the next 12 months and the services the adviser anticipates the client will receive in the next 12 months.
These items have been deleted from the list of matters the FOFA legislation requires to be included in a fee disclosure statement. Therefore, a fee disclosure statement will only need to disclose the fees paid in the previous year, the services the client received in the previous year and the services the client was entitled to receive in the previous year.
However, the regulations can prescribe other matters which must be included in the fee disclosure statement. Therefore, it will be necessary to wait and see if the Government exercises its regulation-making power to require fee disclosure statements for advisers dealing in particular classes of product to include information about future fees and services.
ASIC has confirmed it intends to release regulatory guides providing guidance on the operation of the ban on conflicted remuneration, the best interests duty, scaled advice and ASIC’s use of its increased powers, in consultation with the financial services industry. ASIC is aiming to finalise the regulatory guides by 1 July 2012.
The future is here
With the completion of the PJC and SELC inquiries and despite dissention from each committee’s coalition members, the financial services industry now has clarity on the form of FOFA reforms, which are essentially the same as existed prior to the PJC and SELC inquiries.
The Government is still liaising with the independent MPs in order to secure the passage of the FOFA reforms through the Senate. However, financial advisers, product issuers and platform operators should review their remuneration structures and business operations to identify what changes are made in order to meet the requirements of FOFA and determine an implementation plan to ensure compliance by, at the latest, 1 July 2013.
Focus covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. Focus is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.