FOFA - Background and implementation
Overview of the FOFA reforms
The original Future of Financial Advice (FOFA) package of legislation is contained in two separate but related Acts covering the best interests duty, ban on conflicted forms of remuneration, opt-in and changes to ASIC’s licensing and banning powers, which are the:
- Corporations Amendment (Future of Financial Advice) Act 2012
- Corporations Amendment (Further Future of Financial Advice Measures) Act 2012
The FOFA legislation was passed by Parliament on 25 June 2012 and commenced on 1 July 2012.
The legislation amended the Corporations Act 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 best interests of their clients ahead of their own when providing personal advice to retail clients. There is a safe harbour which advice providers can rely on to show they have met the best interests duty.
- 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.
The FOFA amendments
On 19 March 2014 the Australian Government introduced the Corporations Amendment (Streamlining of Future Financial Advice) Bill 2014 (the Bill) into Parliament that outlined the following changes to the FOFA reforms:
- removal of 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
- removal of the requirement for fee disclosure statements to be sent to pre-1July 2013 clients
- removal of the opt-in obligation for ongoing fee arrangements entered into after the commencement of the Amendment Regulations, and
- 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.
Further information on the FOFA amendments can be found here.
Further background to FOFA reforms
Further information and background to the reforms can be found on the Government's FOFA website.