New financial advice legislative regime from 1 July 2013

Written by Michael McAlary

For all clients and prospective clients it is important to be aware of the Future of Financial Advice (FOFA) legislation. This was passed by Parliament on 25 June 2012 and commenced on 1 July 2012. The changes are mandatory from 1 July 2013.

The legislation amends the Corporations Act and introduces:

1. A prospective ban on conflicted financial planning remuneration structures including commissions and volume based payments, in relation to the distribution of and advice about a range of retail investment products.

The ban will not apply to some products and advice services, including for example:

• general insurance, where the benefit only relates to a general insurance product
• basic banking products where advice is only given on a basic banking product
• financial product advice given to wholesale clients
• advice where the client pays the benefit to the provider (e.g. fee for service arrangements)

2. A duty for financial advisers to 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

3. An opt-in obligation that requires advice providers to renew their clients' agreement to ongoing fees every two-years. ASIC will have the ability to exempt advisers from the opt-in obligation if they are satisfied that the adviser is signed up to a professional code which makes the need for the opt-in provisions unnecessary.