A\u00a0reprieve on risk commissions outside super,\u00a0client opt-in every two years and the introduction of a new form of advice \u00a0headline the new elements of the Government’s\u00a0Future of Financial Advice (FoFA) reforms, announced overnight.<\/p>\n
Following a year-long debate and consultation period for reforms intended to ‘… ensure more Australians have access to high quality and affordable advice’, the new\u00a0FoFA reforms include:<\/p>\n
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Risk Commissions<\/strong><\/p>\n Up-front and trailing commissions for both individual and group risk advice within superannuation will be banned from 1 July 2013.<\/p>\n Part of the\u00a0Government’s rationale is that “Fees and charges within superannuation come at the cost of foregone retirement savings and expenditure on insurance is tax deductible to the fund.”<\/p>\n The Government also notes the results of\u00a0ASIC shadow shopping surveys\u00a0that illustrate\u00a0“… in\u00a0case[s] of poor advice, over half involved poor life insurance advice.”<\/p>\n The ban on conflicted remuneration does not extend to risk insurance outside super, i.e. retail risk commissions may continue.<\/p>\n The benefits for this outcome,\u00a0cited in the Government’s FoFA information pack<\/a>, include:<\/p>\n The Government notes it will continue to pursue client best interest issues in relation to policy churning.<\/p>\n Opt-in<\/strong><\/p>\n Retail clients will have to agree, by opting in,\u00a0to ongoing advice fees every two years from 1 July 2012.<\/p>\n This will be supplemented by an intervening annual disclosure notice to be provided to the client detailing fee and service information for the previous and forthcoming year.<\/p>\n The Government notes “A two-year opt-in means advisers are in regular contact with clients, but provides some flexibility regarding implementation.”<\/p>\n Implementation details include:<\/p>\n If the client does not respond to the notice or opts out, the adviser cannot continue to charge an ongoing advice fee.<\/p>\n Answering the question asked by\u00a0many advisers over the last twelve months about when their liability for advice ceases when a client opts out, the Government states that:<\/p>\n If a client does not respond to a renewal notice, they are taken to have chosen to opt-out 30 days after the anniversary date, meaning the adviser’s liability for ongoing advice ceases at the point that they can no longer charge an ongoing fee<\/em>.<\/p>\n Banning Volume Payments<\/strong><\/p>\n The Government advises:<\/p>\n “…if structural reform in the industry is to truly transpire, all conflicted remuneration, including volume rebates from platform providers to dealer groups, must cease.”<\/em><\/p>\n One of the intended benefits of this ban on volume payments stated by the Government is that it will enhance competition with platforms competing with one another purely on price and quality for the client.<\/p>\n The scope of this ban includes any volume-based shelf-space fees which are paid from the fund manager to the platform provider and from the platform provider to the licensee.<\/p>\n However, the Government notes this ban does not apply to ‘pure risk insurance’, nor do intended bans on\u00a0soft dollar benefits apply to risk insurance outside superannuation.<\/p>\n Best Interests Duty<\/strong><\/p>\n The Government says it recognises that the focus of the best interest duty should be on how a person has acted in providing advice rather than the outcome of that action. It also notes the duty should not be interpreted as imposing trustee-style obligations on financial advisers given the differences in roles between a trustee and a financial adviser.<\/p>\n Further, the Government says compliance with this duty will be measured according to what is reasonable in the circumstances in which the advice is provided. If the client’s needs indicate that only limited advice is necessary, the adviser is not obliged to provide holistic advice.<\/p>\n The Government also stipulates that any financial liability applied as a result of a breach in Statutory Best Interest Duty will be borne by the ‘relevant providing entity’, which mostly means the dealer group licensee.<\/p>\n Introduction of Scaled Advice<\/strong><\/p>\n ‘Scaled advice’ is a term initiated to describe ‘… advice about one area of an investor’s needs, such as insurance, or about a limited range of issues.’<\/p>\n The Government’s motivation to introduce scaled advice is based on ASIC research that indicated many Australians, particularly those who have never previously accessed financial advice, want piece-by-piece simple advice rather than a complete financial plan.<\/p>\n Intended to create\u00a0a level playing field for all advice providers, scaled advice will be able to be offered by:<\/p>\n The Government says the creation of a scaled advice structure “… will also open up new growth opportunities for advice professionals by removing the regulatory barriers to the provision of advice for those with simpler needs, including younger investors.”<\/p>\n A consultation paper, dealing with issues surrounding how scaled advice may be provided, will be released mid year.<\/p>\n Restriction of the Term Financial Planner\/Adviser<\/strong><\/p>\n In considering this issue, the Government is weighing up the argument that on the one hand restricting the use of the term financial planner\/adviser will lead to certain consumer protection benefits against concerns it may, on the other hand,\u00a0create a regulatory barrier to entry and unnecessarily increase the cost of advice.<\/p>\n The Treasury will shortly be providing its recommendation to the Government on this issue.<\/p>\n Work on other aspects of the FoFA reforms is continuing, with draft legislation expected to be\u00a0released\u00a0for public comment shortly after the middle of this year, prior to final legislation\u00a0being introduced into Parliament later this year.<\/p>\n In positioning\u00a0these reforms, Financial Services Minister Bill Shorten<\/strong> said:<\/p>\n “With around 1 in 5 Australians currently receiving advice, the public policy and industry challenge is to ensure more Australians have access to high quality and affordable advice, particularly as we enjoy the gift of longer life. There is little doubt that those who access quality financial advice are better off than those who do not.<\/em><\/p>\n In recognition of this, the FOFA reforms focus on improving the quality of financial advice and expanding the availability of more affordable forms of advice. The removal of regulatory barriers to the provision of different forms of advice will open up new markets for financial planners, helping them reach younger customers and those with less complex advice needs.”<\/em><\/p>\n Click here<\/a>\u00a0to access your copy of the Government’s 2011 FoFA information pack.<\/p>\n\n
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