Financial advisers: Are you on ASIC’s FoFA hit list?

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ASIC has offered advisers some Christmas reading by releasing its final guidance on the best interests duty and scaled advice. Will your business be under scrutiny next year?

When it came to the best interest duty, ASIC commissioner Peter Kell noted that “consumers expect financial advisers to act in their best interests when giving them personal advice”.

To that end, ASIC’s final guidance on best interests, which can be seen in an update to Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (seen here), covers the following areas:

  • acting in the best interests of the client;
  • satisfying the ‘safe harbour’ for the best interests duty;
  • providing appropriate personal advice; and
  • prioritising the interests of the client.

Scaled advice

On the issue of scaled advice, Kell said that “a key objective of FoFA is increasing access to good quality scaled advice”.

“Many consumers want specific advice on a single issue or a limited number of issues, not a comprehensive financial plan,” he added.

According to ASIC, it has now provided specific and practical guidance and examples about giving scaled advice while complying with the best interests duty.

This guidance, which can be viewed in Regulatory Guide 244 Giving information, general advice and scaled advice (seen here) includes worked examples of scaled advice by:

  • banks;
  • general insurers;
  • superannuation funds;
  • financial planners; and
  • stockbrokers.

Conflicted remuneration

The regulator has also offered an indication on how it intends to police the conflicted remuneration ban. The update comes as an initial response to stakeholder feedback on its initial conflicted remuneration guidance – seen here in Consultation Paper 189 Future of Financial Advice: Conflicted remuneration.

An ASIC statement noted that submissions “have raised difficulties with the identification of a single indicative percentage and have not supported ASIC providing indicative thresholds for when we are more likely to scrutinise a benefit”.

“In light of this feedback, we propose to remove indicative thresholds from our final guidance,” it added.

Commenting on the conflicted remuneration issue, Kell noted that ASIC’s final guidance “will instead focus on the principles underlying when a performance benefit is more likely to be conflicted remuneration”.

“CP 189 sets out clearly a range of issues that need to be considered when evaluating employee performance benefits, and these will form the basis of the principles,” he added.

ASIC will release final guidance on conflicted remuneration in February 2013.

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