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Thursday 13 December 2012

12-317MR ASIC releases key FOFA guidance

ASIC today released final guidance for two aspects of the Future of Financial Advice (FOFA) reforms – the best interests duty and scaled advice.

The regulatory guides have been produced after extensive consultation with industry and other stakeholders.

ASIC also provided an update on its proposed guidance for the FOFA conflicted remuneration provisions.

Best interests duty

‘Consumers expect financial advisers to act in their best interests when giving them personal advice,’ ASIC Commissioner Peter Kell said.

ASIC’s final guidance on the best interests duty covers:

  • 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.

The guidance is in an update to Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175).

Scaled advice

‘A key objective of FOFA is increasing access to good quality scaled advice,’ Mr Kell said. ‘Many consumers want specific advice on a single issue or a limited number of issues, not a comprehensive financial plan’.

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

It includes worked examples of scaled advice by:

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

The guidance is in Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).

Update on CP 189 – Conflicted Remuneration and Employee Remuneration

In September 2012, ASIC proposed guidance on the conflicted remuneration ban in Consultation Paper 189 Future of Financial Advice: Conflicted remuneration (CP 189).

CP 189 outlined when ASIC is more likely to scrutinise a performance benefit as part of employee remuneration for potential conflict. This included an indication of what percentage of performance benefits that relates to sales volumes may trigger closer scrutiny by ASIC. The aim of the proposal was to give industry more certainty about when ASIC may scrutinise performance benefits.

Submissions to CP 189 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.

‘Our final guidance will instead focus on the principles underlying when a performance benefit is more likely to be conflicted remuneration’, Mr Kell said.

‘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’, said Mr Kell.

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

Background

The best interests duty and related obligations are set out in Division 2 of Part 7.7A of the Corporations Act. The conflicted remuneration provisions are set out in Divisions 4 and 5 of Part 7.7A.

These new provisions commence on 1 July 2013. AFS licencees can choose to follow the requirements earlier. If they do so, they must register with ASIC.

Further information on ASIC’s implementation of the FOFA reforms is available on ASIC’s FOFA webpage.

Download

  • Regulatory Guide 175 Licensing: Financial product advisers – conduct and disclosure (RG 175) and regulatory impact statement
  • Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244)
  • Report 319 Response to submissions on CP 182 on the best interests duty and related obligations and CP 183 on scaled advice (REP 319)

 

Last updated: 13/12/2012 12:00