FOFA

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The Future of Financial Advice (“FOFA”) reforms are a package of significant reforms for financial advisory businesses, which became mandatory on 1 July 2013.

The FOFA legislation package is contained in the following two Acts:

  • Corporations Amendment (Future of Financial Advice) Act 2012; and
  • Corporations Amendment (Further Future of Financial Advice Measures) Act 2012.

Prospective ban on conflicted remuneration

There will be a prospective ban on conflicted remuneration structures, including commissions and volume based payments. But, this ban is subject to certain exclusions, for example:

  • basic banking products, where the advice is given only on the basic banking product; and
  • financial product advice given to wholesale clients.

Best interests duty

When providing personal advice to retail clients, financial advisors will be subject to a statutory duty to:

  • act in the best interests of their clients, subject to a “reasonable steps” qualification; and
  • place the best interest of their clients before their own interests.

Advisors should also be aware that:

  • an opt-in obligation will be placed upon advisers of retail clients, requiring them to renew their client’s agreement to ongoing fees every two-years. But, it is subject to an exemption by Australian Securities and Investments Commission (“ASIC”), where ASIC is satisfied that the adviser is signed up to a professional code that makes the need for the opt-in provisions unnecessary; and
  • ASIC will have powers to suspend or cancel an Australian Financial Services Licence (“AFSL”), or to make an order banning a person from providing a financial service on the basis of anticipated future conduct.

Legislation

Financial services businesses need to ensure that their payment structures comply with the conflicted remuneration ban for their retail advisory and retail investment product distribution businesses.

Financial services businesses also have to familiarise themselves with Regulatory Guide 246 – Conflicted Remuneration (“RG 246”), and in particular, ASIC’s guidance about when an employee’s performance benefit may be conflicted remuneration (see RG 246.124).

As a result of the introduction of FOFA reforms, the One Investment Group has seen a substantial increase in the level of enquiry for financial planning groups to establish both registered managed investment schemes and unregistered managed investment schemes. Members of the One Investment Group act as responsible entity or trustee for in excess of 100 trusts. Should you be seeking to establish a managed investment scheme, please contact us to discuss further.