Implementation of the Future of Financial Advice (FOFA) reform package is set to revolutionise the
Australian financial services (AFS) industry.
Initially, AFS licensees and their representatives were granted temporary relief from compliance until 1 July 2013. However, the Australian Securities and Investments Commission (ASIC) has now indicated it will take a facilitative approach until 1 July 2014, although deliberate and systematic breaches will incur strong regulatory action.
In a flurry of activity over recent months, ASIC has released several regulatory guides detailing the scope of the reforms and regulatory policy, including the controversial ‘best interests’ duty. Funds management associate Emma Stapleton looks at what the future holds.
Fee disclosure statements
ASIC Regulatory Guide 245 Fee disclosure statements looks at how licensees and their representatives can comply with the fee disclosure statement (FDS) requirements.
In brief, FOFA requires AFS licensees and their representatives who give personal advice under an ongoing arrangement with a retail client to provide the client with an annual FDS setting out the fees paid by the client, the services provided to the client, and the services the client was entitled to receive.
Scaled advice
ASIC Regulatory Guide 244 Giving information, general advice and scaled advice outlines how advisers can meet their statutory obligation to act in the best interests of clients, whilst still providing targeted advice.
In theory, scaled advice can facilitate the provision of timely discrete advice. However, this regulatory guide appears to have caused more confusion and uncertainty as it encourages advisers to adopt an element of ‘judgement’. With the increased obligations and standards now expected of advisers under FOFA, this may result in scaled advice not being as popular as the Federal
Government would like.
Best interest duty
ASIC Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure
(R G 175) provides guidance on the controversial ‘best interest’ duty, including—
1. how to comply
2. satisfying the ‘safe harbour’ test
3. providing appropriate personal advice, and
4. prioritising the interests of the client.
Based on the notion of reasonableness, this duty seems to usher in a statutory-style fiduciary duty which, although conceptually appealing, creates a level of uncertainty for those grappling with the changes.
Opt-in
The FOFA opt-in provisions require advisers who charge ongoing fees to provide their retail clients with a renewal (opt-in) notice every two years. If the client does not complete the opt-in notice then the arrangement is terminated.

The motivation behind this requirement has often been seen as an attempt by the Federal
Government to shift the balance of power towards consumers, who can now more easily move between advisers.
Advisers are exempt from the ‘opt-in’ requirement if they are bound by an ASIC approved code of conduct. ASIC has issued Consultation Paper 191 Future of Financial Advice: Approval of codes of conduct for exemption from opt-in requirement with its proposed amendments to Regulatory
Guide 183 Approval of financial services sector codes of conduct and an updated regulatory guide is expected soon.
Conflicted remuneration
ASIC released Consultation Paper 189: Future of Financial Advice: Conflicted remuneration in
September 2012 and intends to issue a regulatory guide this month (an article addressing the
FOFA reform package – conflicted remuneration was included in the October 2012 edition of
Fundamental ).
What does the future hold?
As the deadline for FOFA fast approaches, there is a raft of essential guidance still pending. While industry rushes to implement the new reforms and remain abreast of the latest developments, participants need to be on their toes to ensure their new procedures and practices are in-line with
ASIC policy.
As the prospect of FOFA becomes a reality, we urge our clients to consider whether they are
FOFA-compliant.
Emma Stapleton
Associate, Funds Management & Financial Services
+61 7 3239 2957 emma.stapleton@mcmahonclarke.com
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