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December 23, 2013

FOFA changes announced

The Assistant Treasurer has announced proposed amendments to the Future of Financial Advice (FOFA) legislation.

The Government's amendments will include:

  • removing the opt-in requirements so that advisers no longer need to seek their client’s agreement every two years
  • restricting fee disclosure statements to new clients from 1 July 2013
  • removing 'catch-all' from the best interests duty of advisers
  • amending the best interests duty to explicitly allow for the provision of scaled advice to enable consumers to receive "one-off advice" from financial advisers
  • exempting general advice from conflicted remuneration: the ban on conflicted remuneration only applies to personal financial advice
  • amending grandfathering: advisers can move between licensees whilst continuing to access grandfathered benefits.

ASIC's response

ASIC will not take enforcement action in relation to the specific FOFA provisions that the Government is planning to repeal. For example, ASIC will not take action for breaches of current section 962S of the Corporations Act 2001, which requires fee disclosure statements to be provided to retail clients with ongoing fee arrangements entered into before 1 July 2013.

ASIC will review and consult on its regulatory guides on FOFA once the proposed amendments have been made.

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Posted 23rd December 2013 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

September 2, 2013

When does information become financial advice?

We regularly get questions about the difference between factual information and financial advice.

The issue is important: from 1 July 2013, all financial services licensees must ensure they have systems and procedures in place to ensure representatives who provide personal advice must act in the best interests of customers and place the customer’s interests ahead of their own when developing and providing advice. You must also warn the client if advice is based on incomplete or inaccurate information.

Persons who provide financial product advice to retail clients must also comply with additional disclosure obligations under the Corporations Act from 1 July 2013.

Factual information is more likely to be advice if it makes a recommendation about what a client should do.

A recommendation or a statement of opinion constitutes financial product advice if it is intended to influence a person in making a decision about a particular financial product.

Financial product advice generally involves an evaluation, assessment or comparison of, some or all of the features of a financial product.

Under the Corporations Act, all financial product advice is either ‘personal advice’ or ‘general advice’.

Personal advice is financial product advice given or directed to a person (including by electronic means) in circumstances where the person giving or directing the advice has considered one or more of the client’s objectives, financial situation and needs.

All other financial product advice is general advice.

To assist you in applying these rules in practice you should consider ASIC RG175 and RG244.

RG175 contains the following examples of the difference between personal advice and general advice:

  • Mailout to entire client list
  • Investment seminar for all clients (which does not give personal advice in response to audience questions)
  • Mailout of brochure in response to a client query
  • Quoting from a PDS in response to a query
  • Mailout to particular client groups
  • Marketing campaigns to a market segment
  • Investment seminars for particular client groups

RG 244 contains the following examples of giving information and advice:

  • How to invest an inheritance
  • The adequacy of retirement savings
  • A retirement savings health check
  • Changing investment options—Call centre conversation
  • Insurance—Call centre conversation
  • Making extra contributions—Email advice
  • Paying a windfall into superannuation or mortgage
  • Superannuation and Centrelink payments––Effect on age pension of accessing funds through superannuation or a mortgage redraw
  • Transition to retirement
  • How long will my account-based pension product last?
  • Nomination of beneficiaries
  • Motor vehicle insurance—Which level of excess?
  • Information and advice about basic deposit products
  • Advice from a stockbroker to an existing client.

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Posted 2nd September 2013 by admin in Corporations Act, Financial Services, Future of Financial Advice Reforms, Insurance, Superannuation

August 1, 2013

ASIC review of financial advisers

Following its review in 2011 of the 20 largest financial advisers (see here) ASIC has now released the results of its review of the next 30 largest Australian financial services (AFS) licensees that provide personal financial advice.

ASIC found that most were taking steps to mitigate key risks but ASIC highlighted risks that it thinks still pose some challenges including:

  • potential and actual conflicts of interest, especially where advisers recommend products issued by related parties.
  • The most reported high-impact risk to the business identified by the top 21 to 50 licensees was non-compliance with legislation, whereas the most reported high-probability risk was the provision of inappropriate advice. Staff retention was another risk that featured prominently as both a high-impact and a high-probability risk.
  • All licensees conducted advice reviews to examine the appropriateness of the advice provided. One of the concerns arising from ASIC's review was that some licensees may not have sufficient resources to properly conduct these reviews.
  • There are some licensees that are not checking references for new advisers with their previous licensee.
  • many licensees do not retain copies of client records separately from advisers. They rely on contractual obligations with the advisers that require the advisers to retain all relevant documents and provide them to the licensee when requested. This may give rise to difficulties for licensees in responding to future inquiries or complaints about the advice provided by advisers who have since left the licensee. This will also make it difficult for licensees to comply with their obligation to ensure that advisers comply with the best interests duty that is part of the FOFA reforms. Rather than relying solely on contractual agreements with advisers, ASIC recommends that licensees should retain access to client records in a more proactive way (e.g. by using electronic storage platforms). This will allow the licensee to respond to regulators, auditors, clients and product issuers, whenever they need to do so, in a timely and efficient manner.

ASIC recommended that licensees should ensure that a trend analysis of complaints is undertaken, and that the results of complaints are fed back to the business, so that the likelihood of similar issues arising in the future at both a licensee and adviser level is reduced.

In the coming year ASIC will visit newly licensed financial advice businesses as well as around 60 established AFS licensees to discuss implementation of the Future of Financial Advice (FOFA) reforms.

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Posted 1st August 2013 by David Jacobson in Compliance, Corporations Act, Financial Services, Future of Financial Advice Reforms

Record-keeping obligations of financial advisers

Keeping proper records of advice to clients and transactions is a key Corporations Act requirement for evidence that financial services are provided efficiently, honestly and fairly.

ASIC has released Consultation Paper 214 Updated record-keeping obligations for AFS licensees (CP 214) containing its proposals for the types of records that must be kept to prove that the licensee and its representatives have complied with the best interests duty and related obligations under FOFA and obligations that apply to superannuation trustees when giving personal advice for which they charge members collectively as intra-fund advice under the Stronger Super reforms.

CP 214 also discusses:

  • records of ongoing fee arrangements entered into with a client
  • copies of documents - such as, fee disclosure statements and renewal notices - that fee recipients must receive for an ongoing fee arrangement, and
  • records to prove the licensee and its representatives have complied with the ban on conflicted remuneration for both personal and general advice.

It is expected that a Class Order will be finalised by December 2013 but ASIC will not strictly enforce the proposed record-keeping obligations until 30 June 2014.

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Posted 1st August 2013 by David Jacobson in Compliance, Corporations Act, Financial Services, Future of Financial Advice Reforms, Superannuation

July 17, 2013

What financial adviser employee benefits are prohibited?

If your business provides financial products or services to retail clients the FOFA conflicted remuneration changes that commenced on 1 July 2013 prohibit giving certain benefits to employees who give advice: section 963J of the Corporations Act 2001.

The test, especially for volume-based performance benefits linked to sales, is whether the benefits could reasonably be expected to influence the advice given by the employee or the choice of financial product recommended: section 963A.

But a bonus which is paid in recognition of high levels of customer satisfaction, an increase in customer referrals, an outstanding compliance rating and developing referral networks with other professional services firms is unlikely to be conflicted remuneration because it would not reasonably be expected to influence the financial product advice given by the adviser.

The Appendix to RG246 lists performance benefits that would otherwise be prohibited which are excluded from the conflicted remuneration provisions. The list includes benefits for advice for basic banking and general insurance products and consumer credit insurance.

Some conflicted remuneration workplace arrangements are grandfathered by section 1528 and the Regulations depending on the type of agreement (eg an enterprise agreement) that provides the benefits and whether the agreement was made before 1 July 2013.

Care should be taken in relation to entering into new enterprise agreements which affect employees who are currently employed under pre 1 July 2013 EAs or under non-EA arrangements and who are paid what may be conflicted remuneration, as what is done may affect how grandfathering applies in relation to those employees.

Langes can advise you on these arrangements.

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Posted 17th July 2013 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

July 1, 2013

FOFA conflicted remuneration grandfathering regulation

The Corporations Amendment Regulation 2013 (No.5) contains the final exceptions to the FOFA ban on conflicted remuneration (in addition to Section 1528 Corporations Act) which commences on 1 July 2013.

The Regulation outlines the application of the ban on conflicted remuneration as follows:

  • for benefits paid by platform operators, the ban will apply in relation to new clients from 1 July 2014; and for non-platform providers, the ban will apply in relation to new clients and investments in new products by existing clients from 1 July 2014;
  • for benefits paid to employees under an enterprise agreement in force immediately prior to 1 July 2013, the ban will apply from six months after the nominal expiry date (NED) of the agreement (or 1 July 2014 for those agreements which passed their NED before 1 July 2013); and
  • for benefits paid to employees under non-enterprise agreements, the ban will apply from 1 July 2014.

In addition, the Regulation excludes the following benefits from the ban on conflicted remuneration:

  • benefits made in relation to the purchase or sale of a financial advice business and the payment of these benefits to third parties on or after the commencement of the ban that result from an arrangement entered into before 1 July 2013; and
  • grandfathered benefits that are passed onto other parties that were not subject to the agreement which gave rise to the grandfathered benefit (but which the passed-on benefit is given under a pre-application day arrangement), for example, an authorised representative or a financial adviser who is an employee of a licensee or authorised representative.

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Posted 1st July 2013 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms

June 21, 2013

Regulatory framework for tax (financial) advice services

The Tax Laws Amendment (2013 Measures No. 3) Bill 2013 has been passed by the House of Representatives and will now be considered by the Senate.

The Bill, if passed, amends the Tax Agent Services Act 2009 to bring entities that give tax advice in the course of giving advice that is usually provided by financial services licensees within the regulatory regime administered by the Tax Practitioners Board.

The amendments mostly commence from 1 July 2014 with a three-year transitional period before the new regime commences in full on 1 July 2017.

Tax agent services provided by financial services licensees and their authorised representatives were previously exempt from the TASA 2009 regulatory regime.

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Posted 21st June 2013 by David Jacobson in Financial Services, Future of Financial Advice Reforms, Tax

June 19, 2013

Registration of financial advisers as tax agents

The Parliamentary Joint Committee on Corporations and Financial Services has recommended that, subject to transitional provisions, the proposed amendments contained in schedules 3 and 4 to the Tax Laws Amendment (2013 Measures No. 2) Bill 2013 be reintroduced and passed.

Schedules 3 and 4 contained proposed amendments that would bring financial advisers who provide tax advice into the tax agent regulatory regime overseen by the Tax Practitioners Board (TPB).

The Committee recommended that transitional arrangements be amended to stipulate that, from 1 July 2013 until 31 December 2014 , unregistered financial services licensees and representatives may provide tax (financial) advice services on condition that they accompany such a service with a disclaimer.

Treasury has published a paper outlining the proposed educational and experience requirements for tax (financial) advisers an individual would need to meet to be registered as a tax (financial) adviser as envisaged in the amendments.


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Posted 19th June 2013 by David Jacobson in Financial Services, Future of Financial Advice Reforms, Tax

June 17, 2013

Limited AFS licence for SMSF advice

ASIC has released Information Sheet 179 Applying for a limited AFS licence (INFO 179) to assist those intending to apply for a limited Australian financial services licence for superannuation advice from 1 July 2013.

Accountants who wish to continue giving advice to their clients about SMSFs will need to obtain a new form of AFS licence, which is referred to as a ‘limited’ AFS licence. Any person can apply for a limited AFS licence (i.e. not only recognised accountants) (Background).

A limited AFS licence can contain the following authorisations:

  • financial product advice on self-managed superannuation funds (SMSFs)
  • advice on a client's existing superannuation, in certain circumstances, and
  • class of product advice on superannuation products, securities, simple managed investment schemes as defined in the Corporations Regulations 2001, general and life insurance, and basic deposit products.

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Posted 17th June 2013 by David Jacobson in Corporations Act, Financial Services, Future of Financial Advice Reforms, Superannuation

June 3, 2013

Updated guidance for reporting by auditors of contraventions

ASIC has released an updated Regulatory Guide 34 Auditors' obligation: Reporting to ASIC (RG 34).

The updated RG 34 provides guidance on the general legislative obligations of auditors of companies and registered schemes to report suspected contraventions of the Corporations Act 2001 to ASIC as well as specific obligations in respect of AFS licences, and similar obligations under the National Credit Act, in respect of credit licences.

It also provides new examples of circumstances that may and may not require reporting to ASIC, and introduces guidance for auditors of credit licensee trust accounts.

Examples of suspected contraventions that are likely to be significant and require notification to ASIC include:
(a) insolvent trading;
(b) failure to comply with accounting standards;
(c) modified audit or review reports;
(d) fraud by officers or employees of the entity;
(e) related party transactions;
(f) composition of the board of directors;
(g) failure to keep books and records;
(h) non-lodgement of financial reports; and
(i) ongoing failures to comply with a compliance plan.

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Posted 3rd June 2013 by David Jacobson in Compliance, Corporations Act, Financial Services, Future of Financial Advice Reforms
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