17 Jul 2014
Future of Financial Advice reforms survive Senate challenge - but more changes on the way
The newly reformed FoFA Regulations will be retained following the failure of a disallowance motion in the Senate, but further changes are expected later this year.
The Senate has voted against a disallowance motion to the Future of Financial Advice (FoFA) Regulations after the Government was able to strike a deal with several smaller party Senators.
Although the current tabled FoFA regulations remain intact it is expected that several changes will be made by further negotiations and amendments to the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 currently before Parliament.
As a part of its deal with the smaller party Senators, the Government has detailed several changes that it plans to make, including requiring:
- financial advisers have important communications and instructions signed and acknowledged by the client and adviser, including instructions by a client to alter or review their instructions;
- that a Statement of Advice (SoA) be signed by both the client and the adviser; and
- the adviser provide a statement in the SoA that they believe that the advice provided is genuinely in the best interest of the client.
The Government has also committed to working with stakeholders to create a public register of financial advisers, which is to include the adviser's qualifications and status.
Statements of Financial Advice
In addition to the aforementioned changes to the Bill, the Government has also committed to a number of obligations to ensure broader disclosure in SoAs.
The Government has specified that additional disclosures investors can expect to be stated in an SoA are:
- the adviser is required to act in the best interest of their client and prioritise their client's interests ahead of their own;
- any fees be disclosed and that the adviser will provide a fee disclosure statement annually, if the client enters into, or has entered into, an ongoing fee arrangement after 1 July 2013 (this is already required);
- a client has the right to return financial products under a 14-day cooling-off period in accordance with the requirements currently provided under the Corporations Act 2001; and
- the client has the right to change his or her instructions to their adviser, if for example they experience a change in their circumstances.
Under its deal with the Palmer United Party, the Commonwealth Government will have 90 days to make the promised updates. Those changes will then need to be tabled in the Parliament which will be followed by a vote in the Senate.
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