There has been much talk (and a lot of noise) surrounding the Future of Financial Advice (FOFA) reforms that officially came into effect as of July 1. For those of you still unclear on ‘what its all about’, we have provided a short summary below.
In short, these reforms are aimed at tightening the duties and payment arrangements of financial planners such as their commission structures and the types of products they are allowed to recommend customers. Going forward planners will also be obliged to renew contractual arrangements regularly which will lessen the risk of customers paying ongoing fees unknowingly for services they are not getting.
The reforms are designed to provide greater protection for investors and in the long run instill greater trust in the financial services sector as a whole. It is a little known fact that currently only one in five Australians access financial advice, a figure we hope to see increase as a result of the reforms.
What it means for FinSec clients.
At Finsec Partners it is business as usual, we have always been free of remuneration conflict and always act in your best interest. We embrace the FOFA reforms and believe they need to continue in order for our industry to be recognised as a valued profession.
The official explanation from the Treasury Department.
Future of Financial Advice package includes the following:
- A prospective ban on conflicted remuneration structures including commissions, in relation to the distribution of and advice on retail investment products including managed investments, superannuation and margin loans.
- The introduction of a statutory fiduciary duty so that financial advisers must act in the best interests of their clients, subject to a ‘reasonable steps’ qualification, and to place the best interests of their clients ahead of their own when providing personal advice to retail clients.
- Increasing transparency and flexibility of payments for financial advice by introducing a two-yearly opt-in arrangement ensuring that consumers are more engaged with their financial advice services and annual fee disclosure statements will provide consumers with transparency about the ongoing fees they pay.
- Percentage-based fees (known as assets under management fees) will only be charged on ungeared products or investment amounts and only if this is agreed to with the retail investor.
- Expanding the availability of low-cost ‘simple advice’ to improve access to and affordability of financial advice.
- Strengthening the powers of the Australian Securities and Investments Commission to act against unscrupulous operators.