Over the years, a series of amendments to the Corporations Act has greatly affected the financial services industry, especially the financial advisers and clients themselves. To give everyone a little background, the original Future of Financial Advice, more commonly called FOFA, was a pair of two separate Acts that were meant to address conflicted forms of compensation for financial advisers, best interest duty, and a few changes to the Australian Securities and Investments Commission’s banning and licensing powers. Specifically, the two acts are the Future of Financial Advice (Corporations Amendment Act 2012) and the Further Future of Financial Advice Measures (Corporations Amendment Act 2012). These were passed by the Australian Parliament back in 2012 and commenced in July of that year.
What is the Future of Financial Advice Act?
Firstly, the FOFA effectively banned remuneration structures such as commission and volume-based payments for financial adviser services. Furthermore, a legal duty and obligation was put on financial advisers to act only in the best interest of their clients. It also required financial advisers to renew their clients’ agreement every two years for ongoing fees and required that there be a fee disclosure statement released annually.
Then came 2014, when the government introduced the Corporations Amendment Bill 2014, otherwise called Streamlining of Future Financial Advice Bill. Several changes were made and passed in a regulation, but the Australian Senate disallowed the new regulation on November of 2014, the same year it was passed. Therefore, the provisions of the FOFA reverted back to the 2012 version.
The latest reform of the FOFA was made in 2016 when the Parliament passed a bill that included extending the time period for fee disclosures and opt-in notices to 60 days after the relevant date.
What does this mean for the financial services industry?
The first reform of the Corporations Act disallowed financial advisers to be paid upfront by their customers. As such, when a client consulted an adviser, they were placed in a financial product and that financial product’s manufacturer then paid the financial adviser. Due to this, the threat of subpar financial advice grew.
With the latest changes to the FOFA, financial advisers are now required to give upfront prices to their clients. However, this has resulted in steeper prices for financial advice which has effectively built a wall and made this service premium. Thus, it is now less accessible to those who simply cannot afford to pay a high price.
What does this mean for the clients?
The FOFA is the Australian government’s attempt to regulate a growing industry and ensure that the people are receiving quality finance advice at a fair price. On the contrary, good quality financial advice now comes with a high price. Because these professionals may cost too much for those who are new investors, people may turn to robo-advice. However, the human mind is still the best computer.