This week the Senate passed two Future of Financial Advice (FoFA) reforms with a start date of 1 July. The reforms include a requirement that all financial advice provided by financial planners be in the “best interests” of the client. This will replace the previous “know your client” standard.
The introduction of a best-interests obligation has been widely supported by the industry, even if there has been some disagreement over the finer details. It essentially legislates that the needs of the client must be first and foremost when a financial planner provides advice.
However, in March this year when the bills were still yet to pass the Parliament, the Government was forced to announce that while the reforms would commence 1 July 2012, they would not be compulsory until 1 July 2013.
Are you following along?
In other words, the existing “know your client” requirement will be repealed on 1 July 2012 but the new “best interests” obligations will not be mandatory until 1 July 2013.
This may have been an oversight to ensure industry would have enough time to comply with the extensive new obligations but it leaves a gaping hole in consumer protection.
The new 'best interests' obligation will not be mandatory until 1 July 2013.
The vast majority of financial planners are professionals and regardless of what legislation is in place, will always act in the best interests of their client. But what about that small minority that will take advantage of legislative loopholes for its own gain?
After all, it was arguably the actions of this small minority that served as the catalyst for the extensive regulatory reform the financial planning industry now faces.
Agree? Disagree? Post a comment below and tell us what you think.