Historic financial advice reforms a win for Australian consumers

In an historic move for Australian consumers, the Future of Financial Advice (FoFA) Bills passed through the House of Representatives last week.

These reforms will significantly improve the retirement outcomes of industry super fund members, and consumers more broadly, and ensure that they can receive high quality professional financial advice that is in their best interests.

Robbie Campo, Manager Strategy (Industry Super Network), said that while the reforms are moderate, they represent a comprehensive set of measures that will substantially deliver on the Government’s policy objectives to improve the quality of financial advice in Australia, strengthen investor protection, promote trust and confidence in the system, and encourage more people to seek financial advice.

“For the first time, financial planners will be required by legislation to act in the best interests of their clients, and sales commissions and other forms of conflicted remuneration will be prohibited,” commented Robbie.

“Importantly, the biennial ‘opt in’ requirement will ensure ongoing asset-based fees do not simply replicate trail commissions and unnecessarily reduce super savings.”

Key aspects of the reforms

Best interests duty – requires advisers to act in the best interests of their clients. The duty provides some details around how an adviser can prove that they have acted in the client’s best interests by following a number of reasonable steps.

Opt-in measure – requires advisers to get consent from clients every two years to continue to charge ongoing fees for financial advice. Clients must be provided with fee disclosure in the intervening year. However, ASIC can exempt by class order relief any provider bound by an ASIC Approved Code of Conduct, which obviates the need for the legislative measure.

Annual disclosure – requires advisers to provide clients with an annual disclosure notice that provides information on  fees and services for the previous year, and also notifies them of their right to ‘opt-out’ of an ongoing advice contract.

Enhanced regulator powers – the Australian Securities and Investments Commission (ASIC) will have increased powers over the licensing and banning of financial planners with the capacity to refuse, suspend or ban a licence if an individual is deemed to have contravened or likely to contravene the obligations.

Ban on conflicted remuneration and commissions – under the new legislation, a range of conflicted payments will be banned, including commissions on investment products, commissions on risk insurance in MySuper and group risk products, soft dollar benefits and volume payments to employees and dealer groups.

For more information contact Robbie Campo at rcampo@industrysuper.com