Future of Financial Advice

Questions: Task 1: The Future of Financial Advice legislation covered several component and areas of financial product advice, including the following key areas Acting in the best interest of the client Conflicted Remuneration Disclosure Task 2: As a final part of your assignment, you are expected to provide a critique forming your own views and conclusion of the FOFA reform a (including the recent changes). You need to discuss the impact (wether positive and or negative) of the FOFA reform on the following: Access to Advice Quality of advice Meeting the substance of acting in the best interest of the client? Answers: Task 1: Part one Background: FOFA In the year 2010, the ex- Australian minister of Minister for Financial Services has announced that the Government of Australia has launched a reform package known as Future of Financial Advice (Cygan, 2012.). The abbreviation of Future of Financial Advice is FOFA. The main function of FOFA is to develop the trust and the Australian traders confidence in the service of financial division. The Future of Financial Advice has ensured to the traders of Australia about the high quality advice in the financial divisions (Choudhry and Landuyt, 2010). The Future of Financial Advice works as per Australian Government, which retort to investigate into the Financial Products and Services in Australia. This reform is made in the year 2009 by the Joint Committee of Parliament on Corporations and Financial Services. The Future Financial Advice legislation covered several component and areas of financial product advice, which includes the following key areas: a) Acting in the best interest of the client b) Conflicted Remuneration c) Disclosure. Acting in the best interest of the client: It mainly provides advice and new ideas to their clients about their best interest act. They only provide the advice and demonstrate to their clients about their interest rate structures and also showing that how they had approved certain steps in demonstrating and counselling their clients (Fevurly, 2009.). The steps which that has been approved by the Future of Financial Advice for their clients acts as a protected port which cares about their clients best interest rate structures. To convince the steps for the secured port a counsellor must provide: 1) The objectives should be identified first, then the adviser look after the financial conditions of the client and then try to understand the needs of their clients which are demonstrated by the clients through some instructions. 2) The adviser should identify the clients subject matter which will help the adviser to give a better instruction to their clients. 3) Thirdly, the adviser should identify their clients objectives, then the adviser should look after the financial conditions of their client and then try to understand the needs of their clients pertinent situation (Kamen and Burg, 2010). 4) The adviser should relate all the information given by their clients and then the adviser should relate all the information given by the client to give a better quality advice to their client. If the adviser understand that the information given by their client is insufficient, the adviser should try to find out all the information and should give a better quality advice to their client. 5) After providing the advice to their client, the adviser should try to find out that the advice given by the adviser is interested by the client or not. If the advice is not interested by the client then try to find out the needs of the client to produce a better quality to the client (Maloney, 2008). 6) After gathering all the information from the client, the adviser should give a better quality advice to the client, so that the client gets satisfied after getting the advice from the adviser. 7) The adviser should give a better judgement to their client which can meet the satisfaction level of their clients. Providing Appropriate Advice After gathering all the information from the client and after understanding the appropriate needs of the client, the adviser should give an appropriate advice to the client (Ripoll, 2012). Conflicted Remuneration Another key area of the Future of Financial Advice is Conflicted Remuneration .The elements represents the conflicted remuneration are the reimbursement given by an Australian Financial Services Licensee. It is also known as AFSL (Allen and Dudney, 2010). It also represents the character of the reimbursement and can be logically influence the option of the financial product which is suggested by the adviser. When does this come into force? The arrangements of Conflicted Remuneration come into act in the year 30 June 2013. This act is mainly maintained by the Australian Government. It acts under the grandfathering regulation. And the person who became the clients with the Future of Financial Advice before the year 1st July 2014, they belong to the regulation of Grandfathering (Allen and Dudney, 2010). And the persons who became clients with the Future of Financial Advice after the year 1st July 2014, they are not belongs to the regulation of Grandfathering. The benefits of Conflicted Remuneration The conception of benefits is very broad and wide in conflicted remuneration. The benefit of conflicted remuneration includes both the financial and the non financial benefits. The types of benefits that come under the conflicted remuneration are: a) The financial product issuers pay some commissions. b) The financial product issuer pays some discounts in volume based matters. c) The adviser may get some bonus or some margins of profit, if it is volume based matter. d) For the advisers, they have some equity participation schemes. e) The adviser gets some reward like travel and amusement. Exceptions of Conflicted Remuneration There are plenty of exceptions in Conflicted Remuneration which includes: a) The financial product may be based on the product of general insurance, life insurance, or the product may be based on banking sector (Kramer, 2012). b) By issuing or by selling the financial product, the benefits are given. c) If the client is satisfied by the advice, the benefit is given to the adviser. d) According to the securities, stamping fees is needed. e) If it is a non financial product or less than the 300 AUD for the education purpose or for the training purpose, benefit is allocated. Disclosure Statement The disclosure statement of the Future of Financial Advice is mentioned in the following. The Future of Financial Advice was firstly launched in the year 2013. In the year 2013, the FDS that is the fee disclosure statements for the new clients and the old clients are almost same (Yellen, P. 2003.). When the client comes to the Future of Financial Advice for their advice, the adviser charges for their advice. The steps are given to prepare FDS: 1) Collate a list of all retail only clients The adviser must give Fee Disclosure Statement to the new clients as well as the old clients. The new clients of the Future of Financial Advice who have became the client after 13 July 2013 does not receive any fees arrangement by the adviser. But the clients who have became client with the Future of Financial Advice before 1st July 2013 receives fees arrangements from the adviser. 2) The clients who are not in the section of ongoing fee arrangement The arrangement of payment plan: a) The fees which should be paid by the client are fixed. And the arrangement of FDS is made by the adviser when the client enters into the deal. b) The clients can pay the fees in instalments in a fixed period of time. c) The client cannot neglect the fees structure under the arrangement of the Future of Financial Advice. 3) The FDS last date The fee disclosure statement should be handover to the client within the 30 days from the beginning of the date of disclosure. If 1st July is the disclosure date then the FDS can be handover to the recipients between the 1st July and 30th July (Kramer, M. 2008.). This brings more flexibility in the Fee Disclosure Statement. 4) Inform clients The fee disclosure statement should be submitted in written to the client by the adviser. This means the adviser can send the fee disclosure statement to the client through electronic mail and via by post. Task: Part 2 The impact of the Future of Financial Advice on the following:- a) Access to Advice b) Quality of Advice c) Meeting the substance of acting in the best interest of the client. Access to advice: The Future of Financial Advice has removed the legislation section 961B(2)(a). And instead of the previous section 961B(2)(a), they launched another legislative section 961B(2)(ba) (Gerrans, P. and Hershey, D. 2011.). Under the new legislative section, the Future of Financial Advice has given a new responsibility to the adviser. The adviser should examine the clients conditions which are appreciably reduced. The Future of Financial Advice should look into the matter that the clients of the Financial Advise Group are not getting the proper advice due to the underprivileged language skills and lack of financial knowledge. After gathering all the information from the client, the adviser should give a better quality advice to the client, so that the client gets satisfied after getting the advice from the adviser. The adviser should give a better judgement to their client which can meet the satisfaction level of their clients. Quality of Advice: Firstly, the adviser should try to understand the clients need and then the adviser should look after the financial conditions of the client. If the client wants to take enough risk, then the adviser should advice the client in a different method. If the client do not wants to take enough risk, then the adviser should demonstrate the client in different way (Gerrans, P. and Hershey, D. 2011.).. That is why the adviser should understand the clients requirement first and then demonstrate the matter and give advice to the client. After providing the advice to their client, the adviser should try to find out that the advice given by the adviser is interested by the client or not. If the advice is not interested by the client then try to find out the needs of the client to produce a better quality to the client. Meeting the substance of acting in the best interest of the client: The projected law makes the situation broad and wide for the client of the Future of Financial Advice, where the representative or the worker of an Authorised Deposit taking Institution can contact with the clients by reducing the interest rates for the individual advice. The individual advice can be demonstrated on the basis of the product of general insurance, the product of life insurance and also in the financial product produced by the banking sector (Gerrans, P. and Hershey, D. 2011.). This is mainly relating with the Consumer Credit Insurance product also known as CCI product. In Consumer Credit Insurance it has been reflected that there is many constant and mis-selling. The Future of Financial Advice has to take care of it. The objectives should be identified first, then the adviser look after the financial conditions of the client and then try to understand the needs of their clients which are demonstrated by the clients through some instructions. References: Carstensen, L. (2009). A long bright future. New York: Broadway Books. Choudhry, M. and Landuyt, G. (2010). The future of finance. Hoboken, N.J.: John Wiley. Cygan, D. (2012.). The joy of financial security. Fevurly, K. (2010.). Plan your financial future. Kamen, K. and Burg, D. (2010). Reclaim your nest egg. Hoboken, N.J.: Bloomberg Press. Maloney, M. (2008). Guide to investing in gold and silver. New York: Business Plus. Ripoll, B. (2012). Corporations Amendment (Future of Financial Advice) Bill 2011 and Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. Canberra: Senate Printing Unit. Yellen, P. (2003.). The bank on yourself revolution. Allen, A. and Dudney, D. (2010). Does the Quality of Financial Advice Affect Prices?. Financial Review, 45(2), pp.387-414. Kramer, M. (2012). Financial Advice and Individual Investor Portfolio Performance. Financial Management, 41(2), pp.395-428. Calcagno, R. and Monticone, C. (2008.). Financial Literacy and the Demand for Financial Advice. SSRN Journal. . Gerrans, P. and Hershey, D. (2010.). Financial Adviser Anxiety, Financial Literacy and Financial Advice Seeking. SSRN Journal. Gerrans, P. and Hershey, D. (2011.). Financial Literacy and Financial Advice Seeking in an Ageing Australia. SSRN Journal. Kramer, M. (2008.). Financial Literacy, Cognitive Ability and Financial Advice-Seeking. SSRN Journal.