The Assistant Treasurer on Fri 20.12.2013, announced reforms the Government intends to make to the Future of Financial Advice (FoFA) legislation. Senator Sinodinos said the Government supported the principles of FoFA, but considered 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.

Key elements of the reforms 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.
  • 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.  The Government considers that 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 Government said 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 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.
  • Exempting general advice from conflicted remuneration: The Government will ensure that the ban on conflicted remuneration only applies to personal financial advice.
  • Grandfathering: The Government will amend the existing grandfathering provisions to ensure that advisers can move between licensees whilst continuing to access grandfathered benefits.  It said the current grandfathering provisions are reducing competition in the industry by impeding the movement of advisers between licensees.

A detailed summary of the Government’s amendments is in the Assistant Treasurer’s media release.

Following the announcement, ASIC said it will not take enforcement action in relation to the specific FoFA provisions the Government is planning to repeal. For example, ASIC not take action for breaches of current s 962S of the Corporations Act 2001, which requires fee disclosure statements to be provided to retail clients with ongoing fee arrangements entered into before 1 July 2013. ASIC said it will review and consult on its regulatory guides on FOFA once the proposed amendments have been made.

[LTN 247, 20/12/13]

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