The Association of Financial Advisers (AFA) believes it has unearthed a loophole in the Future of Financial Advice (FoFA) reforms, which could leave consumers unprotected.
According to a legal opinion sought by the AFA, the staggered implementation of the legislation – with a “soft launch” on July 1 this year – could potentially have ramifications for retail clients.
“The AFA has had legal advice which suggests that on a literal interpretation of the law, there will be a period where neither the current Know your Client obligation under Sections 945A and 945B of the Corporations Act 2011, nor the Best Interests obligations under FoFA will apply to a licensee or advisers when giving personal advice to retail clients,” says AFA chief executive Richard Klipin.
The AFA’s legal advice suggests that while Section 945A will be repealed by the FoFA legislation, coming into effect from July 1 2012, the Best Interests obligation only comes into effect from the point when a licensee opts in or July 1 2013, whichever comes first (Section 1527).
“Given this uncertainty, we are genuinely concerned that consumers may be left unprotected for up to a year and are seeking urgent government intervention to resolve the issue,” says Klipin.
Given the state of the legislation, regulations and “lack of regulatory guides”, Klipin believes that all of FoFA should have had a start date of July 1, 2013.
“A start date of July 1, 2013 would have been straightforward and easy to implement,” he says.
“The complex and confusing commencement-date amendment has opened up a new set of problems that could have significant negative consequences for consumers.”
Klipin adds that the AFA wants to ensure that consumers are not disadvantaged by the legislation.
“This complication of what is already complex and confusing legislation has the potential to put consumers unnecessarily at risk.”
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