Compliance burden to shift to advisers under FOFA
Updated regulatory guidance published by the Australian Securities and Investments Commission (ASIC) late last year has shifted much of the compliance burden directly onto advisers.
The updated Regulatory Guide 175, published by ASIC on 13 December 2012, contains greater obligations on the adviser to prove a client will be better off if they are placed in a related-party product - the so-called 'conflicts priority rule'.
The rule will leave it up to advisers - rather than compliance departments - to make the ultimate judgement calls, according to InFocus head of compliance and professional standards Lyn Dixon.
"This is fantastic, because if you think about it in real terms that's what advisers get paid for, and they should be able to do that," Dixon said.
"It's clearly up to the adviser to do their research. This really sets it out clearly," she said.
But if a related-party product is more expensive than the original product, it will be very difficult for advisers to convince ASIC the client is better off, she said.
"Unless it's cheaper, how can you find a benefit for the client?" Dixon asked.
Additionally, if advisers want to drive clients into particular platforms or products to drive efficiencies in their business, the savings will have to be reflected in the client's fee for service, she said.
According to The Fold's Claire Wivell Plater, advisers won't be able to "hide" behind their licensee's Approved Product List any longer.
RG 175 states that "the best interests duty does not prevent or require the use of approved product lists". It goes on to state:
"In other cases, an advice provider will need to investigate and consider a product that is not on their AFS licensee's approved product list to show that they have acted in the best interests of the client when providing them with personal advice".
AUTHOR
Staff Writer
Recommended for you
Government has introduced a bill to Parliament to legislate the first stream of the QAR reforms.
ASIC now has a 1:1 ratio when it comes to court success in the enforcement of crypto activities and more action is expected as Treasury seeks to introduce a regulatory framework.
A leading governance body has hit out at “specialist interest groups proposing ad hoc law reform” when it comes to reforms of financial services legislation and believes an independent body is needed.
The release of ALRC’s final report into financial services legislation has highlighted financial advice as a “significant” focus as it seeks to reduce costs and help advisers understand their obligations, alongside the Quality of Advice Review.
