Mr Cormann rejected as “wrong” two “key propositions” that have been put forward by critics of the government: that the Coalition is “somehow abolishing or significantly watering down the best interest duty for financial advisers”, and “that we are reintroducing commissions for financial advisers”.
The government will continue with the contentious exemption for general advice, but as recommended by the Senate Economics Legislation Committee report on Monday night, the exemption will be amended to prohibit upfront or trailing commission being paid for general advice.
Any payment made solely because a financial product of a class in relation to which the general advice was given has been issued or sold to the client will be prohibited, as will any recurring payment made because the person has given the general advice.
In addition, as recommended by law firm Minter Ellison during the Senate inquiry into the FOFA amendments, the person providing the general advice will have to be an employee of the financial product provider.
The Government will also go ahead (via regulation) with previously announced changes including the removal of the opt-in notice requirement; the changes to annual fee disclosure requirements; the removal of the ‘catch-all’ step from the best interests duty; and increased ‘certainty’ around scaled advice.
Changes to grandfathering that will permit adviser movement will also be made, with presumed support from Labor; and ‘balanced scorecard’ incentive payments which do not conflict advice will be permitted (both changes will be enacted via regulation).
A number of changes will also be progressed through amendments to the Corporations Act and not through regulation, including: clarification of the operation of the volume-based shelf-space fees; and an extension of the time period advisers are required to send a fee disclosure statement to a client in an ongoing fee arrangement from 30 to 60 days after the client’s anniversary date.
The Corporations Act will also be amended by the government to expand regulation-making powers in relation to the conflicted remuneration provisions “to allow the government to react quickly to address unintended consequences or if industry were found to be misusing the provisions”.
“We explicitly supported the introduction of a statutory best interest duty for financial advisers and the ban on conflicted remuneration or commissions which distort investment advice,” said Mr Cormann.
“We remain concerned that FOFA, as previously legislated, will reduce affordability and accessibility of financial advice in Australia,” he said.
“Labor’s FOFA changes did not strike the right balance. As the then minister, Bill Shorten, must have known they did not, given he refused to put those FOFA changes through the former government’s own required regulatory impact and cost-benefit assessment,” said Mr Cormann.
