Future of Financial Advice (FOFA) reforms
In June 2012 reforms were introduced into the Corporations Act 2001 by the Corporations Amendment (Future of Financial Advice) Act 2012 and Corporations Amendment (Further Future of Financial Advice Measures) Act 2012. These reforms included the best interests duty, ban on conflicted forms of remuneration, opt-in obligation and changes to ASIC’s licensing and banning powers.
Overview of the FOFA reforms
The legislation amended the Corporations Act 2001 and introduced:
- A prospective ban on conflicted remuneration structures, including commissions and volume-based payments, in relation to the distribution of and advice about a range of retail investment products.
- A duty for financial advisers to act in the best interests of their clients, subject to a 'reasonable steps' qualification, and place the interests of their clients ahead of their own when providing personal advice to retail clients.
- An opt-in obligation that requires advice providers to renew their clients' agreement to ongoing fees every two years.
- An annual fee disclosure statement requirement.
- Enhanced powers for ASIC.
Compliance with the FOFA reforms was mandatory from 1 July 2013.
ASIC took a facilitative compliance approach to the FOFA reforms for the first 12 months, which was consistent with our stance during the introduction of other major policy reforms. This facilitative period ended on 1 July 2014.
FOFA amendments
On 19 March 2014, the Australian Government introduced the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014 (Bill) outlining the following changes to the FOFA reforms:
- Removing the 'catch-all' element of the 'safe harbour' for the best interests duty and further amendments to the best interests duty to facilitate scaled advice.
- Removing the requirement for fee disclosure statements to be sent to pre-1 July 2013 clients.
- Removing the opt-in obligation for ongoing fee arrangements entered into after the commencement of the Amendment Regulations.
- Exempting general advice from conflicted remuneration in some circumstances.
Most of these changes were implemented through the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (the Streamlining FOFA Regulation), which commenced on 1 July 2014.
Changes to the Statement of Advice (SOA) requirements were also implemented through the Corporations Amendment (Statements of Advice) Regulation 2014 (SOA Regulation), which was to commence on 1 January 2015.
The Streamlining FOFA Regulation was disallowed by the Senate on 19 November 2014, meaning that the FOFA provisions reverted back to their position prior to the commencement of the Streamlining FOFA Regulation. A number of these regulations were reinstated by the Corporations Amendment (Revising Future of Financial Advice) Regulation 2014, which commenced on 16 December 2014.
The SOA Regulation was repealed on 16 December 2014 by the Corporations (Statements of Advice) Repeal Regulation 2014.
On 2 March 2016, the Bill – renamed the Corporations Amendment (Financial Advice Measures) Bill – was passed by the Parliament. The Bill made a number of amendments, including extending the time period for giving opt-in notices and fee disclosure statements from 30 days after the relevant date to 60 days after the relevant date.
For more information on the FOFA amendments, visit Future of financial advice amendments.
ASIC regulatory guidance for FOFA reforms
ASIC regulates people who provide financial advice to retail clients under the Corporations Act 2001. We have released regulatory guidance in relation to the FOFA reforms.
ASIC's powers
Regulatory Guide 98 ASIC's powers to suspend, cancel and vary AFS licences and make banning orders (RG 98) reflects our expanded powers to cancel or suspend an Australian financial services (AFS) licence and ban representatives.
Best interests duty
Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175) includes guidance about ASIC's expectations for meeting the best interests duty, and was amended to ensure that it is consistent with our guidance in Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244).
Giving information, general advice and scaled advice
Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244) explains the differences between giving factual information, general advice and personal advice and how to meet the best interests duty and related obligations, when giving ‘scaled’ advice.
Our guidance discusses a range of topics, including how the fact find can be either limited or expanded, depending on the nature of the advice being provided. RG 244 also incorporates guidance that was previously in Regulatory Guide 200 Advice for super fund members (RG 200). RG 200 has now been withdrawn
Conflicted and other banned remuneration
Regulatory Guide 246 Conflicted and other banned remuneration (RG 246) is designed to assist industry to understand the practical operation of the ban on conflicted remuneration. It also sets out how ASIC will administer the ban.
Codes approval
Regulatory Guide 183 Approval of financial services sector codes of conduct (RG 183) was updated to include guidance about how ASIC would apply its code approval guidelines to codes that obviate the need for compliance with the opt-in requirement.
Limited AFS licences
See Limited financial services for an overview of the relevant steps in applying for a limited AFS licence, as well as explaining how existing ASIC guidance will apply. It incorporates guidance that was previously in Information Sheet 179 Applying for a limited AFS licence (INFO 179), where still relevant. INFO 179 has now been withdrawn.
Replacement of accountants' exemption with a new limited AFS licence
As part of the FOFA reforms, the 'accountants' exemption' was repealed on 1 July 2016. The 'accountants' exemption' allowed recognised accountants to give financial product advice about acquiring or disposing of a self-managed superannuation fund (SMSF) without an Australian financial services (AFS) licence.
See Limited financial services for guidance on the regulations that replace the existing accountants' exemption. Our guidance provides an overview of the relevant steps in applying for a limited AFS licence, as well as explaining how existing ASIC guidance applies.
ASIC has also released Information Sheet 216 AFS licensing requirements for accountants who provide SMSF services (INFO 216). This information sheet provides guidance on how the licensing regime applies to SMSF services provided by accountants and how the law applying to accountants has changed from 1 July 2016.
