In an effort to counter “fiction” and “misrepresentation”, the Association of Financial Advisers (AFA) has issued a fact sheet about what it feels the proposed FoFA amendments actually mean.
And although the changes to the regulations was recently put on hold by the new face of FoFA, Mathias Cormann, the AFA hope this will give people time to better understand the facts.
“We now have a window of opportunity for the reintroduction of facts and integrity into the FoFA amendments debate,” CEO Brad Fox said.
However he did emphasise the importance of a more timely solution for the controversial
grandfathering issue that is currently preventing advisers from moving from one licensee to another.
The AFA’s FoFA facts are:
Best Interests Duty
The deletion of the ‘other steps’ requirement (Section 961B(2)(g)) is the deletion of just one of seven steps under the Best Interests Duty, which sits alongside a further three separate, but interrelated obligations in the Corporations Act. The removal of this one open-ended and unclear ‘other steps’ requirement is an enhancement to the legislation that will ensure consumer protection. Importantly, the separate obligation to prioritise the interests of the client, where there is conflict with the interests of the adviser, will ensure that there is no way for advisers to avoid their obligation to act in their clients’ best interests. There is no justification for the claim that the Best Interests Duty is being removed. There is significant support from leading financial services legal firms for the removal of the ‘other steps’ obligation. Now is the time to listen to the people who really understand how this will work.
Financial advisers have provided scaled advice (advice focused on a specific client need) for years. ASIC has stated that the majority of advice is scaled to some extent. The original FoFA legislation clearly permitted the provision of scaled advice. In fact scaled advice is central to one of the key tenants of FoFA – greater access to cost effective financial advice. Scaled advice is what industry funds and other super funds will be able to do under intra-fund advice. There is no validity to a claim that the ability to agree on the scope of advice means financial advisers are no longer required to act in a client’s best interests.
Storm and another financial collapse
There have been a number of comments from people with vested interests that these changes will mean there will be another ‘Storm Financial’ type collapse. The people making these claims are clearly not aware of the issues with Storm and the changes that have been made to financial services laws since, including:
- Margin loans are now ‘financial products’ and accordingly the full financial advice obligations apply
- Asset-based fees on borrowed funds have been banned
- The Best Interests Duty and the requirement to prioritise the interests of the client where conflict exists with the interests of the adviser
Nothing in these changes has any significant impact upon the prospects for another financial collapse. This is a baseless claim that generates heightened concern, but has never been supported by any clear evidence.
Changes to Commissions
A number of newspaper articles reported from mid-February that ISA is claiming the Government’s amendments will result in the reintroduction of commissions in 10 ways. Due to the fact that the ISA submission to Treasury on the FoFA amendments was confidential until released by Treasury on 20 March, it was not possible to investigate or respond to this claim before that date. Our initial analysis of the claim has revealed that only one (the general advice exemption) is a new exemption, although this does not apply to financial advisers who provide personal advice. In a couple of other reported examples, the Government has proposed extensions to existing exemptions (insurance inside super, although this was subsequently removed and execution only transactions). The other cases were in fact merely clarifications or minor refinements of existing exemptions put in place by the former Labor Government. Note that although the claims state 10 examples, the ISA’s own report actually listed just 9.