Australia Delays Financial Advice Reforms
Monday, March 26, 2012
The Australian government has announced that its Future of Financial Advice reforms will not become mandatory until July, 2013, stressing that this will benefit the wealth management industry.
The reforms were originally intended to come into force on July 1, 2012. Under the government’s new plans, the reforms will still officially commence from that date, but the application of the provisions will be voluntary for the following year. Mandatory application will start from July 1, 2013. As a result, businesses wishing to start complying with the reforms from July this year will have to elect to do so.
The FOFA package includes the following:
- A prospective ban on conflicted remuneration structures including commissions and volume-based payments, in relation to the distribution and advice of retail investment products including managed investments, superannuation and margin loans;
- The introduction of a statutory fiduciary duty, designed to ensure that financial advisers must act in the best interests of their clients, subject to a 'reasonable steps' qualification, and place the best interests of their clients ahead of their own when providing personal advice to retail clients;
- Increasing transparency and flexibility of payments for financial advice by introducing 'adviser charging'. This is intended to help align the interests of the financial adviser and the client and to be clear and product neutral;
- Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor;
- Expanding the availability of low-cost 'simple advice' to improve access to and affordability of financial advice; and
- Strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators.
"The government has listened to concerns from the business and financial planning community that they need more time to prepare for these changes. This timetable also balances consumer needs, as it gives early industry movers the opportunity to provide commission-free products from July 1 2012," Minister for Financial Services and Superannuation Bill Shorten said.
"The revised implementation arrangements will lower industry implementation costs as they will be able to synchronize FOFA and Stronger Super reforms. The FOFA reforms are about making sure more Australians can access affordable and better quality financial advice, free from the conflicts of interest created by commissions and other product payments. These reforms will drive greater competition and innovation and are a long term growth strategy for this important industry," Shorten added.