Part 2: Follow up from October’s newsletter: My Investment went South – Can My Investment Advisor be Liable?
In October’s newsletter, I wrote about the recent decision of Fisher v Risk and Investment Advisors Australia Pty Ltd (ACN 104 922 394) and an investors right to be compensated as a result of negligent financial advice.
New legislation has now been passed that provides more rights for investors to pursue a claim for negligent financial advice pursuant to the provisions of the Corporations Act 2001 (Cth) (“the Act”).
In June 2012, “Future of Financial Advice” legislation (“FOFA reforms”) was passed which amends the Act to impose a duty on financial advisers to act in the best interests of their clients and place their clients’ interests ahead of their own when providing advice.
This means that investors will be entitled to receive advice that is in their best interest, rather than being directed to products or services because of incentives or commissions offered to the financial advisor.
The FOFA reforms also provide for a ban on conflicted remuneration structures, including commission and volume based payments, in relation to the distribution of and advice about a range of retail investment products. This ban, however, only applies to certain products and advice services. The right to remuneration will still stand with general insurance and banking products.
The Australian Securities and Investment Commission (“ASIC”) are also given enhanced powers to regulate the financial advice given to investors. While ASIC usually regulates the financial advice given by advisors to investors under the Act, this enhanced power will give ASIC the power to take stronger
regulatory action.
The FOFA reforms commenced on this time, however, it is for the Australian Financial Services (“AFS”) licensee to decide whether they wish to comply with the FOFA reforms.
Some AFS licensees will choose to comply with the FOFA reforms prior to the mandatory date of 1 July 2013. As the FOFA reforms are designed to tackle conflicts of interest and provide a higher professional standard it may be wise to make enquiries with your current financial advisor as to whether they have implemented these changes. If your advisor has not started to implement these changes or has not registered with ASIC to comply with the FOFA reforms you may want to look around for a financial advisor who is compliant.
Many people are of the view that these reforms are long overdue. It is hoped that the reforms will improve the trust and confidence of Australian investors in the financial planning sector and to increase the professional standards that investors are entitled to receive.
