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FINS2643 WRITTEN REPORT

FINS2643 Assignment
The article well be discussing today talks about the new reforms to the financial planning industry proposed by
the new Liberal government.

As we discussed last week, financial advice group Storm Financial collapsed back in 2009. This resulted in the
Labour government introducing the Future of Financial Advice reforms, FOFA for short. The most significant
of the FOFA reforms was the axing of commissions and other forms of conflicted compensation for new clients,
and a new legal obligation for financial advisers to put their clients' best interests before their own. As part of
the Coalitions election campaign last year, it had flagged a number of changes to FOFA, which it said were
needed to ''streamline'' Labor's reforms. There are four main changes the government wants to introduce:
1. Changes to the best interest legal obligation
2. Scrap the opt-in requirement
3. Allow conflicted payments on other products where no financial advice is given
4. Extend commissions on general and life insurance inside super to group life insurance inside super.
Best Interests - The most significant and pompous change the new government wants to introduce is to
narrow the scope of the best interest legal obligation for planners. This means that under the new changes
financial planners only need to give appropriate advice rather than what is in the best interest of their
clients. A tick a box checklist will be created by advisors, and little attention will be given to their clients
unique problems.
Opt-In This will scarp the requirement where planners have to receive written consent from their clients at
least once every two years for the relationship to continue. This means many consumers will have to pay
ongoing fees for advice, which automatically comes out of the investment account set up by their financial
planner.
Conflicted Payments - If the amendment is passed, advisors would get away with only giving general advice
and would have no incentive in giving advice where they are not getting commission. However financial
advisor bodies argues that most commission based products would still be distributed under general advice,
so they dont leave themselves open to regulatory risk.
Insurance - With the introduction of the new amendment it is believed that advisors will start recommending
certain commission based funds over others even though this is not in the best interest of their clients.
The coalitions proposed changes to the FOFA laws ultimately effect the Financial Advisor Client relationship
in regards to transparency & disclosure, remuneration structuring and the agency conflict between the two
parties. The changes bring to the relationship both legal and ethical adaptations that must be addressed by
the planner. These changes occur in 4 key areas namely:
1.

2.

3.

4.

Best interest legal Obligations - An advisor must make it clear to the client within the disclaimer in
the preparation of a written plan, that they will be limiting the scope of the advice to what is required
by the client.
Opt-in requirement changes - In the SOA, remuneration structure changes should be made clear
under Fees & commission in both a dollar figure and percentage of assets managed together with an
expected time frame for the fees to be paid.
Conflicted payments - Proposed government changes suggest that commission would be more
widely available on detailed products where no personal financial advice is given so it may lead to
advisors to be less willing to recommend detailed products that they cannot received commission
for.
Insurance - If the changes are implemented, advisors will need to take extra care when
recommending insurances to clients, by clearing outlining how the product matches the client and
their financial needs, as well as being transparent when it comes to the selection of the insurance and
any commission that will be received.