Skip to main content

Draft advice legislation a FoFA rollback

Mike Taylor15 November 2023
Arrows going separate ways

ANALYSIS

Anyone who has been involved in the financial advice sector for the past 20 years will see the irony in the fact that the Government’s approach contained in its first tranche exposure draft legislation around the Quality of Advice Review (QAR) simply rolls back the efforts of earlier Labor Governments.

Financial advisers who were practicing ahead of the 2012 pursuit of the Future of Financial Advice legislation will recognise that, broken down, the new legislative package being proposed by the Government, the Treasury Laws Amendment (2024 Measures No 1) Bill 2024, rolls back elements such as those around conflicted remuneration and fee disclosure.

It is worth remembering what the FoFA legislation imposed on financial advisers. It:

  • introduced heightened obligations on advisers to act in the best interests of retail clients and place the interests of clients ahead of their own (“Best Interests Duty”);
  • imposed a ban on conflicted remuneration structures (for example, volume based commission payments);
  • implemented requirements for advisers to renew ongoing fee arrangements with clients every 2 years (the opt in requirement); and
  • imposed an obligation on advisers to send annual fee disclosure statements to clients.

If Michelle Levy’s Quality of Advice Review (QAR) did one thing, it identified the degree to which the legislation and regulation around financial advice had been made too onerous over the past two decades, particularly as a result of FoFA.

Thus, the Assistant Treasurer and Minister for Financial Services, Stephen Jones has rightly admitted that the exposure draft legislation delivers half of Levy’s QAR recommendations.

Indeed, he might have added that the draft legislation delivers on the easier half of the QAR recommendations – the easy wins.

Jones said the draft legislation in the first tranche adopts half of the recommendations of the Quality of Advice Review, including:

  • Recommendation 7 – Clarifying the legal basis for superannuation trustees paying a member’s financial advice fees from their superannuation account, and associated tax consequences.
  • Recommendation 8 – Consolidating different ongoing fee consent documents into one simplified document.
  • Recommendation 10 – Allowing more flexibility in how financial services guides are provided.
  • Recommendations 13.1 to 13.5 – Clarifying that monetary or non‑monetary benefits given by a client are not conflicted remuneration, along with the removal of consequential exceptions.
  • Recommendations 13.7 to 13.9 – Strengthening transparency and protections for consumers by introducing written consent requirements for consumers before they purchase an insurance product that will result in a commission payment.

The reality, of course, is that there is a long way to go before the exposure draft is taken into the Parliament and NSW Liberal Senator, Andrew Bragg, is right to suggest that the legislation may not even be debated in the Parliament before the next Federal Election.

“Releasing a draft bill at this stage of the term means there will likely be no substantive financial advice reform in the life of this Parliament,” Bragg said.

Mike Taylor

Mike Taylor

Managing Editor/Publisher, Financial Newswire

Subscribe to comments
Be notified of
5 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Canberra Collective Morons
3 months ago

ALPs FOFA was acceptable and workable. It was more BS Over Regulation but no where near as bad as 9 years LNP / Frydenbergs Kill Adviser utter BS mass Over regulation ADDED on Top of FOFA.
Combined with 15 Years of ASICs further Added on top own BS Regs interpretations.
CANBERRA COLLECTIVE POLLIE & BUREAUCRATIC MORONS HAVE ALL DONE IT.
Canberra Collective Morons stop pointing fingers and actually fix it.
https://ipa.org.au/ipa-today/red-tape-at-record-high-across-australia

Jimmy Dee
3 months ago

The only significant positive in the draft is the scrapping of FDS’s in favour of a single consent form. But a closer look reveals it is not going to be mandatory for super funds and platforms to accept the form and they can add other requirements on top.

A nice little win for industry funds who can continue to treat independent financial planners with contempt and force members to use their own in-house conflicted financial advisers (aka sales jockeys).

Des Nutmeg
3 months ago

It is unhelpful to describe this as a FoFA rollback.That is simply not the case. Yes FDSs are going, however it is important to appreciate that fee consent was not required when FoFA was first implemented. We can reasonably argue that fee consent has replaced FDSs. There is nothing else in this package that could be defined as a FoFA rollback, and in fact some of the Conflicted Rem changes are to remove exemptions that were put in place as part of FoFA. The objective is to improve access and affordability. That outcome is still in doubt until the other QAR reforms are implemented. This is a good first step, but much more needs to be done.

Scott
3 months ago
Reply to  Des Nutmeg

It’s not in doubt. It has done next to nothing to improve access to affordable advice and therefore it is a failure assuming this was the actual intention of the review.

XTA
3 months ago
Reply to  Des Nutmeg

Exactly, the new fee consent essentially combines the same information as a FDS into the fee consent form anyway, so it wont be faster to produce and you are still chasing signatures. It would have been more efficient to have the client sign an initial service agreement with the adviser, and then the product providers could easily identify the advisers fees and report them on the clients annual statement or a separate statement, highlighting it could be cancelled (opt-out) at any time, yet under this proposal advisers have to incur the same cumbersome administration and chasing signatures. Sounds like little consultation with advisers on the practicalities was taken into account by government.