The Senate Committee tasked with reviewing the amendments to the Future of Financial Advice (FOFA) reforms has recommended they be passed with minor adjustments. However the committee was not unanimous in its recommendations with Greens and Labor Senators objecting to all the suggested changes.
In making the recommendation that the Federal Government pass the amendments bill the committee stated that its primary concern had been” to achieve a proper
balance between providing adequate consumer protection and sound professional and affordable financial advice”.
The committee stated that the proposed amendments were well balanced and that “the best interests duty remains robust and comprehensive and that clients can receive scaled advice without diminishing their consumer protections”.
In specifically addressing the changes to the best interests duty within section 961B(2)(g) of the Corporations Act, the committee recommended the catch-all provision be removed. It stated that other consumer protections provisions within the Corporations Act – including sections 961G, J and H and the best interests requirement in subsection 961B(1) – would ensure that best interest duties were not diluted by the removal of section 961B(2)(g).
In the area of scaled advice the committee recommended that the Explanatory Memorandum to the amendments bill includes a section which details the required best interests duty and called for the government to ensure these duties were not circumvented in any way.
The committee made it clear that in providing an exemption for conflicted remuneration in the area of general advice only that the Federal Government did not intend to reintroduce commissions but that more work was required in law to ensure this did not happen.
It recommended more clarity around the implementation of provisions governing conflicted remuneration and clearer definitions around terms such as general advice and personal advice.
In supporting the removal of the opt-in requirements and the issuing of Fee Disclosure Statements prior to 1 July 2013 the committee stated that it imposed a compliance burden on advice providers for little gain.
The Labor senators on the committee filed their own dissenting report, as did the single Greens senator, rejecting the changes and advocating that the existing FOFA legislation remained unchanged.
While the Greens called for a review of the FOFA legislation in five years the Labor senators were more critical. They described the amendments as undermining the “the core principles of best interests duty, consumer protection and lifting the standards to a professional level” and the review process as shambolic and chaotic.
However they called for the Federal Government to reintroduce legislation, halted in the last parliament that would restrict the use of the terms 'financial planner' and
'financial adviser'.
