Part 7.7A of the Corporations Act 2001 (Cth) implements the Future of Financial Advice (FOFA) reforms introduced by the Corporations Amendment (Future of Financial Advice) Act 2012 (Cth) and the Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 (Cth) to improve the quality of financial advice provided to consumers of financial products and services. Part 7.7A :

• requires providers of personal advice to retail clients to act in the best interests of their clients, to give priority to the interests of their clients where there is a conflict of interests and to comply with other related obligations;

• imposes certain fee disclosure and renewal notice obligations on financial services licensees and their representatives who provide personal advice to retail clients under "ongoing fee arrangements";

• bans “conflicted remuneration”, including product commissions and volume-based benefits, being given or accepted by financial services licensees or their representatives where financial product advice is provided to retail clients; and

• bans some other forms of remuneration that could also influence the quality of financial advice provided to retail clients

The new regime commenced on 1 July 2012 with a voluntary compliance period until 1 July 2013. Compliance became mandatory from 1 July 2013. ASIC took a facilitative compliance approach to the new regime until 1 July 2014. On 19 March 2014, the Federal Government introduced the Corporations Amendment (Streamlining of Future of Financial Advice) Bill 2014 into Parliament which contained changes to the regime that were designed to reduce compliance costs for small business, financial advisors and consumers who accessed financial advice. Regulations were made to implement most of the key changes on an interim basis pending Parliament's consideration of the bill. However, those regulations were disallowed by the Senate on 19 November 2014, after having been in operation for nearly 5 months. Some of the changes were then reinstated by regulation. ASIC took a further facilitative compliance approach to the new regime which ended on 1 July 2015. Finally, the modified bill (now called the Corporations Amendment (Financial Advice Measures) Act 2016) received Royal Assent on 18 March 2016 and the changes to the regime contained in it commenced 19 March 2016.

ASIC has released a number of regulatory guides in relation to the FOFA reforms.

The provisions in Pt 7.7A should be considered in conjunction with the provisions in Pt 7.7 that affect how financial advice is provided to retail clients.

There are a number of matters which apply generally to Pt 7.7A :

• s 960 contains definitions of key concepts and commonly occurring expressions used in Pt 7.7A ;

• s 960A prohibits contracting out of Pt 7.7A ;

• s 960B provides that the obligations imposed on a person under Pt 7.7A are in addition to any other obligations to which the person is subject under the Corporations Act 2001 (Cth) or any other law;

• s 965 prohibits schemes to avoid the application of Pt 7.7A ; and

• the Corporations Regulations provide a general exemption to Pt 7.7A in respect of financial services provided by a financial services licensee or authorised representative to retail clients who are not in this jurisdiction.

In addition, it should be noted that ASIC has issued a class order containing updated obligations requiring AFS licensees to keep records to prove compliance with certain of the obligations under Pt 7.7A when they give personal advice to retail clients.

See Matters common to Part 7.7A.

Division 2 of Pt 7.7A imposes obligations on providers of personal advice to retail clients to:

• act in the best interests of the client (s 961B );

• provide the client with appropriate advice (s 961G );

• warn the client if the advice is based on incomplete or inaccurate information (s 961H ); and

• give priority to the interests of the client where there are conflicts of interest: s 961J.

These obligations are collectively referred to by ASIC as the “best interests duty and related obligations.” They replace the “suitability of advice” requirements which used to be contained in ss 945A and 945B (now repealed).

Note that there are exemptions to Div 2 of Pt 7.7A in some cases where ASIC has provided class order relief.

See Best interests duty and related obligations.

Division 3 of Pt 7.7A deals with "ongoing fee arrangements" and requires financial services licensees and their representatives who provide personal advice to retail clients under an arrangement under which a fee is to be paid during a period of more than 12 months (an "ongoing fee arrangement") to give enhanced disclosure of their fees and services. This entails the current fee recipient giving clients an annual Fee Disclosure Statement containing certain information. In addition, clients who entered into ongoing fee arrangements after 1 July 2013 must be provided with a renewal notice every 2 years.

See Ongoing fee arrangements.

Division 4 of Pt 7.7A contains a ban on benefits which are “conflicted remuneration”, including product commissions and volume-based benefits, being given or accepted by financial services licensees or representatives of a financial services licensee where financial product advice is provided to retail clients.

The benefits banned are ones which reasonably could be expected to influence the choice of products recommended or the advice given to retail clients.

“Conflicted remuneration” has the meaning given by s 963A . However, certain benefits are excluded from the ban.

See Conflicted remuneration.

Division 5 of Pt 7.7A contains a ban on some other forms of remuneration. This is in addition to the ban on conflicted remuneration contained in Div 4 of Pt 7.7A.

The other forms of remuneration that are subject to the Div 5 ban are:

• the acceptance by a platform operator of a volume-based shelf-space fee from a funds manager (Subdiv A ); and

• the charging by a financial services licensee or its authorised representative who provides financial product advice to a retail client of an asset-based fee on a borrowed amount used to acquire financial products by, or on behalf of, the client (Subdiv B ).

See Other banned remuneration.