On 29 August 2011, the Assistant Treasurer released the first tranche of draft legislation to implement the Government's Future of Financial Advice (FOFA) reforms.
The first tranche of the draft Bill covers a number of key components of the FOFA reforms, including:
These amendments include de-criminalising these requirements, so they have the same penalty as the "best interests" duty.
The draft Bill also includes an obligation on licensees to take reasonable steps to ensure their representatives' compliance with the "best interests" duty. However, an exemption will apply for authorised representatives, so they do not breach the obligations if the breach resulted from reasonable reliance by the authorised representative on information or material provided by the licensee.
If a financial adviser is to charge an ongoing fee to a retail client, then the adviser will be required to send:
The opt-in will apply to new clients from 1 July 2012.
Advisers are expected to be given considerable flexibility about how to discharge the opt-in obligation. Advisers who charge on-going fees but who do not have regular face to face meetings with their clients will be able to use electronic channels such as phone or internet and could potentially use a record of advice to record the renewal. For example, the client could fill a short form online and clicking a button to send the email.
If the client does not renew the adviser's services by "opting-in" to the renewal notice, then the client will be assumed to have opted out. In that case, the adviser can no longer charge the client an advice fee.
The client will also be entitled to recoup any ongoing fees that are charged if the adviser does not send either a fee disclosure or renewal notice. Only those advisers intending to charge ongoing advice fees to retail clients need to provide the notices.
If an adviser continues to charge an ongoing fee after a fee arrangement ends as a result of the renewal notice obligation (either after a client chooses not to renew, or does not respond to the renewal notice), then the adviser will be subject to a civil penalty. Because a breach of the opt-in duty is likely to be less serious than a breach of the "best interests" duty, it is:
The draft Bill enhances ASIC's ability to supervise the financial services industry through changes to its licensing and banning powers. These amendments include:
The FOFA reforms were originally announced on 26 April 2010 in response to the Ripoll Review. Further details and refinements were announced on 28 April 2011.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, pleaseLTA.Service@thomsonreuters.com
Julian Smith is a partner in the Maddocks Commercial team.
Julian advises extensively in the following areas:
Julian advises clients ranging from public companies servicing the wholesale financial services market to high net worth individuals and their advisers.
Julian has been with Maddocks since undertaking articles in 2001.
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