What is FOFA?

What is FoFA? Otherwise identified as  “The Future of Financial Advice”, FoFA is legislation that was initially introduced by the federal Labor government in July 2012 to give shoppers with  protection from deficient economic guidance and, along with that, trust and self-assurance in the economic services sector. The legislation became mandatory on 1 July 2013.

The objectives

There are 3 principal objectives to the FoFA legislation, which are:

1. Very best interest duty

The greatest interest duty is for advisers to keep the objectives, economic circumstance and needs of the retail client paramount when supplying personal monetary suggestions. ASIC regulatory guide RG 175 outlines further information.

2. Conflicted remuneration ban

This component of the FoFA legislation enacted a ban on any payment (monetary or non-monetary) that could influence the item recommended or tips offered. ASIC regulatory guide RG246 outlines specifics.

3. Ongoing client engagement and charge disclosure needs

The objective is to ensure that economic arranging consumers know both what they are paying and what that payment is for. To facilitate this, advisers will want to give fee disclosure statements annually and acquire client consent each and every 2 years where an ‘ongoing charge arrangement’ applies with an opt-in statement. ASIC regulatory guides RG245 and RG183 deal with these concerns.

The modifications

Right after winning the election, the federal Liberal government proposed temporary reforms to amend FoFA (the Corporations Amendment Bill 2014), to be applied from 1 July 2014. It removed some of the customer protection initially promised, like:

1. Diluting the very best interest duty by removing the catch-all requirement to take “any other step that…would be regarded as being in the ideal interests of the client”

2. Excluding common guidance from the remuneration ban (exactly where common tips means guidance given without getting based on the client’s overall situation)

3. Removing the requirement for customers to consent to ongoing advice, and only requiring charge disclosure statements for consumers very first engaged right after 1 July 2013.

However…

In November 2014 the Senate disallowed the proposed adjustments, which means a return to the original undiluted FoFA laws. Customer groups have applauded this as offering greater protection for shoppers, as originally intended.

What is FOFA?