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FOFA FLIP-FLOP

Posted on December 2nd, 2014 by Sophie Gerber in Legal Work

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There has been a mighty flip-flop on the future of financial advice (“FOFA”).

Changes to the FOFA laws are effective immediately as a result of the Senate vote on 19 November 2014. Licensees and representatives need to review their policies and practices to ensure that they comply with the FOFA laws as they now stand.

The Senate (by a 32-30 vote on 19 November 2014) disallowed and struck down the current Government’s Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (the “Regulations”). This means that the former Government’s FOFA requirements now operate unamended by the Regulations.

The immediate effects include the following.

  • There are wider prohibitions on a licensee or representative (who gives advice to retail clients) from accepting and giving conflicted remuneration. For example:
    • the previous exemption in the Regulations for general advice in certain circumstances is no longer available; and
    • the previous exemption in the Regulations for individuals’ performance bonus in certain circumstances (where, among other things, the benefit is low in proportion and the conflicted measure is outweighed or balanced by other measures) is no longer available.
  • There are wider best interests duty obligations when providing personal advice to retail clients. For example:the last catch-all step of the best interests duty safe harbour (previously removed by the Regulations until 31 December 2015) will now apply; and
    • the reduced best interests duty where only the first 3 steps of the best interests duty safe harbour are required (previously extended by the Regulations) will now have more limited application.
  • The requirement for licensees (with ongoing fee arrangements with retail clients that commenced after after 1 July 2013) to obtain their clients’ agreement at least every two years to continue the arrangement (previously removed by the Regulations until 31 December 2015) will now apply.
  • The requirement for licensees to give retail clients (with an ongoing fee arrangement) an annual fee disclosure statement (previously removed by the Regulations for pre-1 July 2013 clients until 31 December 2015) will now apply for pre and post 1 July 2013 clients.

The effects are immediate, and financial service providers must comply with the FOFA requirements.

The Australian Securities and Investments Commission (“ASIC”) has issued a media release pursuant to the Senate vote, which may offer some degree of assistance:

“… ASIC will take a practical and measured approach to administering the law as it now stands following the disallowance of the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014. We will take into account that – as a result of the change to the law that applies to the provision of financial advice – many Australian financial services licensees will now need to make systems changes. ASIC recognises this issue may arise in particular areas, including fee disclosure statements and remuneration arrangements.

We will work with Australian financial services licensees, taking a facilitative approach until 1 July 2015.”