ASIC reports on FOFA implementation

Report 407: Review of the financial advice industry’s implementation of the FOFA reforms was released today and is the result of meetings with ASIC and 60 AFSL holders between October 2013 to April 2014.

The licensees in the survey sample accounted for close to 10,000 advisers and 4.6 million retail clients, according to the report.

The report found that for most of the licensees in the sample, the type of advice they provided had not changed as a result of FOFA.

"Most licensees did not change their service offerings as a result of FOFA, although some indicated an increase in scaled advice and strategic advice," said ASIC.

However, most licensees had reviewed their APLs in light of the FOFA reforms, affecting the composition of approximately one third of the licensees' APLs, said the report.

When it came to revenue, most licensees indicated that their revenue streams had changed as a result of the ban on certain forms of conflicted remuneration, said ASIC – "often with a reduction in the relative value of investment commissions and an increase in advice fees".

"Blended fee models were common, with licensees stating that their advisers charged for advice through a range of methods, including advice fees and commissions," said the report.

"Advice fees were often calculated as a fixed fee (e.g. a flat fee or a fee based on an hourly rate), and/or as a percentage of clients’ assets."

The biggest challenges for the 60 licensees were compliance challenges and risks, said the report.

"In general, licensees reported that they understood what was required under the FOFA reforms, and most of the unpreparedness that reportedly existed before 1 July 2013 seemed to have been addressed," said ASIC.

"At the time of our research, some uncertainties for the industry remained, as the government’s proposed amendments to FOFA had not been implemented," said the report.

"While licensees were generally supportive of the objectives of FOFA, some queried whether the changes would be effective in increasing access to affordable financial advice, and some were critical of the form of the changes and the associated compliance costs."