05 Feb Back to the future for FoFA
It’s our guess that proposed reforms released for public consultation last week relating to highly contentious parts of the Future of Financial Advice (FoFA) legislation were met by whoops of joy in the advice community.
FoFA was born out of the chaos sparked by the Storm Financial crisis in a bid to restore market integrity and increase investor protection. Many however believed the consumer protection reforms introduced by Labor were too onerous, costly to apply and would punish ‘good’ advisers unnecessarily.
Quite contrary to the acid tests applied by Labor to needle out the shoddy few, the Assistant Treasurer Arthur Sinodinos appears to be more empathetic to our beleaguered financial planning community.
Here is a summary of what he is proposing to wind back:
– Opting out of opt-in
The Government is seeking to remove “opt-in” requirements that oblige financial advisers to renew ongoing fee arrangements with pre-FoFA clients every two years.
Sinodinos said that as it stood, the legislation creates unnecessary red tape and gives no added protection to the consumer.
– Retrospective fee disclosure exemption
Annual fee disclosure requirements for pre-FoFA clients are also on the chopping block due to the increased costs associated with calculating those fees, according to Sinodinos.
If the reforms are successful, advisers will not need to provide the fee disclosure statements to clients who agreed to a fee arrangement before the introduction of FOFA on 1 July 2013.
– Good advice
The Government’s proposed reforms aim to make scaled advice exempt from the best interests duty to allow for instances of “one-off advice”.
Current arrangements have prevented consumers from getting advice that is accessible and tailored to their needs, according to Sinodinos.
The new reforms aim to allow clients and advisers to pre-determine the scope of advice, thereby limiting costs to the advice being given.
– General advice exemption
The Government’s reform package includes the removal of general advice from conflicted remuneration, ensuring the provision only applies to personal advice.
As it stands, without the exemption, advisers could limit the provision of general advice to avoid confusion, while staff not directly involved in the provision of advice, would be unnecessarily burdened.
– Grandfathered benefits
The ban on grandfathered benefits for financial planners that switched dealer groups is limiting competition, according to Sinodinos.
Under new proposals, financial advisers are able to move between licensees and continue to access grandfathered benefits.
– Bedding down the reforms
Government are accepting submissions until 19 February leaving industry three weeks to lodge submissions