Future of Financial Advice (FOFA)

1. Future of Financial Advice(FOFA) An Overview for Staff Prepared by MSM Compliance Services Pty Ltd

2. Who Are MSM Compliance? • MSM is a national professional services business focused on the general insurance industry. • Your company has engaged MSM to assist in the management of its obligations as a holder of an Australian Financial Services Licence. • MSM helps to ensure that you and your company comply with your AFS Licence obligations with the least disruption to your core business.

3. Why are you reading this? • To provide you with an overview of the changes created by the Federal Government review into the quality of advice provided by AFS Licensees. • It will present you with a synopsis, but not the detail. • Where your business is directly affected You should review the relevant section in the Broking Policy and Procedures

4. Future of Financial Advice Reforms • Reforms were created by the advice failings arising out of clients that lost money in corporate collapses such as Opes Prime, Westpoint, Storm Financial, etc. • Government review process commenced in 2009 with final legislation passed in June 2012 with implementation effective from 1st July 2013. • Changes were implemented by two pieces of legislation that amended the Corporations Act and the Corporations Regulations.

5. What are the Changes Creation of three new concepts / definitions • Best Interest Obligations • Creates an obligation to put the client first. • Fee Disclosure Statements (FDS) • Creates an obligation to send the client an annual Fee Disclosure Statement • Conflicted Remuneration • Places a ban on “Conflicted Remuneration” being paid or received by an AFS Licensee.

6. What are the Changes • Each component works in conjunction with the others with the intent to provide an improvement in the quality of advice provided. • All amendments only apply to Retail Clients. • There are various exclusions where the new obligations do not apply to all Licensees or all activities of a Licensee.

7. Best Interests Definition • It would reasonably be regarded as in the best interests of the client to take a step, if a person with a reasonable level of expertise in the subject matter of the advice that has been sought by the client, exercising care and objectively assessing the client’s relevant circumstances, would regard it as in the best interests of the client, given the client’s relevant circumstances, to take that step. • In plain English – “Is the client likely to be better off if they take the advice?”

8. Best Interest Obligations The following obligations only apply if we are providing Personal Advice to Retail Clients. • Conduct appropriate needs analysis. • Consider the client’s relevant circumstances • Make reasonable enquiries where information is missing or incomplete. • *Assess if we have the required expertise. • *Conduct a reasonable investigation into the products to be recommended. • *Base all advice on the clients relevant circumstances. • *Take other steps required in light of the clients circumstances. * - Not applicable to General Insurance Advice.

9. Fee Disclosure Statement Obligations • The following obligations only apply if: • We are providing Personal Advice to Retail Clients. • We are charging client an annual fee for such advice. • One-off fees charged in relation to advice on a specific transaction are not caught, meaning 99% of Life and General Insurance advisers will not be affected by this obligation. • Commissions paid by suppliers are not usually considered “Fees” • Provide clients with an FDS statement setting out: • The fees charged in the last year. • The services they were entitled to receive. • The services that they did receive. • The FDS is to be sent no later than 30 days from the date of last FDS sent or 12 months from date of first charging such a fee.

10. Conflicted Remuneration Definition • A benefit given to an AFS licensee / Representative who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances, could reasonably be expected to influence: • (a) the choice of financial product recommended to clients by the AFS licensee or representative; or • (b) the financial product advice given to clients by the AFS licensee or representative. Please note numerous exclusions that apply!

11. Conflicted Remuneration Obligation • A Licensee must neither pay nor receive any “Conflicted Remuneration” • Applies to Representatives. • By default includes “Volume Based Benefits” • May also include “Performance Benefits” • Includes Asset Based Fees on borrowed amounts. • Includes “Shelf-Space fees”.

12. Conflicted Remuneration Exclusions • The following remuneration is specifically excluded from Conflicted Remuneration. • Wholesale Client services. • All General Insurance • Life Insurance (outside of Superannuation) • Soft dollar items under $300 • Genuine education and training payments. • Banking staff recommending basic banking products.

13. Where to from here? Ensure the business is: • Not caught by any of the new obligations; or • Where you are impacted, implement systems and procedures, training etc. to ensure compliance with the obligations. MSM are able to provide further training to AFS Licensees on the above topics by request.