How will the FoFA legislative changes will affect you.
Are you seeking financial advice? NICRI’s Craig Hall explains how the new FoFA legislative changes will affect you.
Much debate and discussion has occurred regarding the Future of Financial Advice (FoFA) initiatives first introduced by the Labor Government in 2012. The original objectives, as stated on the FoFA website, “...are to improve the trust and confidence of Australian retail investors in the financial services sector and ensure the availability, accessibility and affordability of high quality financial advice.”
It seems that both the current and previous governments have had difficulty in striking a balance which satisfies advocates for both those seeking and those providing advice. In July this year, some aspects of the FoFA reforms were rescinded by the Abbott Government. The debate regarding whether the measures go too far, or not far enough, will continue well into the future as the FoFA outcomes are measured and technology and innovation bring change to the industry. Despite this, it is fair to say that we will still have a more robust, more transparent and less conflicted system than we did before.
So, how will this affect us as individuals? Here is what the FoFA changes mean for those seeking financial advice.
Banning of conflicted remuneration/commissions
Financial planners are no longer allowed to receive any payment considered to be conflicted remuneration - most commonly commissions - for recommending certain investment products. Their income is likely to come directly from their clients and will be determined by factors, such as the complexity of the situation, the time taken to research and formulate recommendations, the services included and the actions involved to maintain the portfolio on an ongoing basis. This measure is intended to remove the possibility and/or the perception that recommendations are made primarily for the benefit of the planner.
This ban does not apply to certain financial services products and existing arrangements which were in place prior to 1 July 2013 will remain.
Tip – Discuss the fee structure thoroughly with your financial planner and obtain a copy of the Financial Services Guide (FSG) at your initial meeting.
Fee Disclosure Statement (FDS)
When a financial plan is presented, an FDS should be presented along with the Statement of Advice (SoA). This FDS outlines the specific service and fee arrangement between you and your planner. These agreements may also be referred to as an Ongoing Service Agreement, Ongoing Fee Arrangement or a Client Service Agreement. Importantly, they can be terminated at any time.
Tip – Look carefully into the services which are available to you as part of these agreements and consider whether they actually benefit you. Be sure to utilise all that is being offered.
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