Future Of Financial Advice (FoFA) Reforms explained
As of the 1st of July 2013, the Future of Financial Advice (FoFA) reforms and the rules within are now legally enforceable by the government. The FoFA reforms set out new laws relating to financial advisers, and aim to increase the protection of the consumer when seeking and receiving financial advice, while also improving the quality of the information provided. The main changes that will affect you as a consumer are explained below.
FoFA changes that will affect you
Firstly, the FoFA reforms introduce a fiduciary duty, also known as a legal obligation, on the financial adviser to do what is in the best interest of the client, as opposed to the interests of themselves or others such as finance companies or banks etc.
For example, if a financial adviser was an investor in a project and would benefit from you as a client investing your own money in this project, then before the FoFA reforms came in, he could have told you to do so, and neglected to tell you of other opportunities, even if there were better options available. Well now this cannot happen, the adviser must act with your best interests in mind, so if you would get a better return elsewhere, that is where he has to invest your money.
Secondly, financial advisers can no longer receive any benefits from product providers which may influence their advice. This basically means no more commissions given to financial advisers by finance companies to favour their products over others when giving advice to clients.
However it should be noted that this change only applies to new advice or investments etc., if there is already a relationship or agreement in place that was established before July 1 2013, then be aware that your adviser may still be receiving a commission for that agreement. It is only new agreements made after July 1 2013 that have this protection.
Thirdly, there is an obligation for financial adviser to disclose fees charged and what services you have received for said fees. This ensures you know what you are paying for, and also helps you to compare financial advisers, based on their fees and charges. There is also a new opt-in rule, which means that every 2 years you, as a client, have to consent to continue any arrangement, and thus any new fees and charges. Meaning you won’t be continually charged fees without knowing about it, and fees won’t change unbeknownst to you. This also only applies to new agreements made after July 1 2013.
Other changes included will mean an increase in the ease and affordability of obtaining limited advice on a particular issue, and also increasing ASIC’s power to control the industry by removing an unscrupulous operators.
The aim of the FoFA reforms is to provide extra protection for consumers, by using the instruments mentioned above. You will now be able to trust the advice you get from advisers, as there will be no commissions influencing the advice you are receiving, and the adviser now has a legal obligation to act in your best interest.
The industry will also now be more competitive, as the fee disclosure rule will increase transparency among advisers, and the banning of commission influenced advice means financial product providers will now have to compete on the strength of their product offerings, instead of the size of the commissions they paid to advisers.
In general this means that when you are seeking advice from a financial adviser, you can rest assured knowing that the government has you protected from any deceitful activities.