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Many may not be aware, but as of the 1st of July 2013 the largest reforms associated with the financial planning and advice industry are now mandatory. LJ Financial discusses what constitutes a compliant organisation and how the changes impact both existing clients and those considering financial advice for the first time.
On the 1st of July 2013 the reforms in relation to the Future of Financial Advice were made mandatory. The major changes include the best interests duty, opt-in and fee disclosure reforms, a ban on conflicted remuneration, a ban on soft dollar benefits and changes around scaled advice.
Best Interests Duty
For the client, this essentially means that the adviser must act in their best interests and not for themselves or the company that they work for. Financial advisers must establish that they have acted in the best interests of the client by ensuring that appropriate steps have been taken before any advice is given. For the adviser it comes down to the notion of "reasonableness" meaning that the adviser has undertaken a "reasonable investigation" when recommending particular products or specific advice.
Opt –In & Fee Disclosure
This is in relation to new clients that sign on to ongoing advice and is probably the most positive reform when it comes to the financial services industry. This is a requirement that all advisers must request their clients that are paying on-going fees must opt-in, or re-new, their agreement every 2 years. In addition the advisers must provide the clients, as a minimum, a statement outlining all the fees they have been paying in the previous 12 months.
Ban on Conflicted Remuneration & Soft-Dollar Benefits
Licensees & authorised representatives will not be allowed to receive or be entitled to receive payments or non-monetary benefits if it influences the recommended product. In real terms, it means that the adviser must recommend products based on the suitability for the client not on the remuneration received. The restrictions on soft dollar benefits include a ban on non-monetary benefits that are given to advisers if they recommend certain products to clients. This is particularly relevant to those companies that are either directly licenced or indirectly incentivised by larger companies to recommend certain products as they will banned from this practice as it falls under conflicted remuneration.
Scaled Advice
The Government is now allowing scaled advice to be provided by advisers both inside and outside of superannuation. In real terms a client may request advice on a certain part of their finances without taking into account any other part of their financial situation. An example of this would be a review and advice around a client’s superannuation and insurance, without providing advice around their personal financial situation.
LJ Financial applauds these changes as more transparency and greater focus on the clients is always a fantastic change for the industry. These reforms will hold advisers more accountable for the advice given and will give the individual both more control and more involvement in their personal financial situation. Also it will reassure the client that the advice is appropriate for their circumstances with no ulterior motive around the product and advice given.
Finally as an individual either receiving or looking to get some financial advice around their finances be sure that your adviser is FOFA compliant and it is also a great opportunity to review the fees you’re paying and ensure the advice is suitable for your circumstances.
Duncan Brown
Private Wealth Adviser
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