AFA identifies FOFA best interests gap
The transition between the existing 'know your client' rules and the new Future of Financial Advice (FOFA)-based 'best interests obligation' risks leaving clients without legal protection, according to the Association of Financial Advisers (AFA).
The organisation says it has legal advice which suggests the problem arises because of the delayed implementation date of the FOFA changes.
AFA chief executive Richard Klipin said his organisation had received advice which suggests that on a literal interpretation of the law there would be a period during which neither the current 'know your client' obligation of the Corporations Act nor the 'best interests' obligation would apply to a licensee or advisers when giving personal advice to clients.
He said this was because while the old 'know your client' obligation would be repealed from 1 July this year, the 'best interests' obligation would only become effective when a licensee opted into the new regime or on 1 July next year.
"Given this uncertainty, we are genuinely concerned that consumers may be left unprotected for up to a year," Klipin said.
On this basis, he said the AFA was seeking government action to resolve the issue.
"Given the state of the legislation, regulations and lack of regulatory guides, the AFA believes that all of FOFA should have a start date of 1 July, 2013," he said.
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