Our Ref:   CZK/
T:  (03) 9605 2633
F:  (03) 9258 9617
E:  CKetsakidis@mbcommercial.com.au

16 September 2011

Attention:  General Manager
Retail Investor Division
The Treasury
Langton Crescent
PARKES ACT 2600

By Email: futureofadvice@treasury.gov.au 

Dear Sir

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Exposure Draft - Corporations Amendment (Future of Financial Advice) Bill 2011
We refer to the exposure draft and EM which were released as part of the public consultation process.  We thank you for the opportunity to comment and attach a copy of the exposure draft with our marked revisions and set out our comments in relation to those revisions below.
1.	Background
1.1	The Explanatory Memorandum to the Exposure Draft of the Corporations Amendment (Future of Financial Advice) Bill 2011 (Draft FOFA Bill) states that the underlying objective of the reforms under the Draft FOFA Bill is to
(a)	improve the quality of financial advice;
(b)	building trust and confidence in the financial planning industry through enhanced standards which align the interests of the adviser with the client;
(c)	reduce conflicts of interest; and
(d)	facilitate access to financial advice through the provision of simple or limited advice.
1.2	The Draft FOFA Bill is ill designed to achieve those objectives and fails to effectively build on existing protections under the Corporations Act 2001 (Act) in relation to the provision of personal advice to retail clients.
1.3	For example:
(a)	the repeal of sections 945A and 945B of the Act; and
(b)	replacement of those obligations with the provider obligations under proposed paragraphs 961C(2)(a), (c) and (d),
ignores the relative positions of the provider and the retail client as financial expert and unsophisticated consumer respectively.  It also confuses the best interests duty with other obligations of a financial services provider such as the duty to exercise skill and care (which is implicit) the necessary information gathering processes that are properly a function of an expert.
1.4	Attached is a marked revision to the Draft FOFA Bill with suggested changes shown in tracked form.  The reasons for the changes are set out below.
2.	REVISED ITEMS 9, 10 and 11
2.1	Section 945A in its existing form imposes a clear obligation on a providing entity (that is, a financial services licensee or an authorised representative of one or more licensees) to determine the relevant personal circumstances of a retail client.
2.2	By contrast:
(a)	proposed paragraph 961C(2)(a) only requires the provider of advice to identify the objectives, situation and needs from information volunteered by the client through his or her instructions; and
(b)	under paragraph 961C(2)(c), the adviser need only take positive steps to discern the required information for advice where it is reasonably apparent that the client’s instructions are deficient.
2.3	Section 945A is better aligned to reality as:
(a)	the adviser (that is, financial services expert):
(i)	is more appropriately placed to extract the relevant information from the retail client; and
(ii)	could be reasonably expected to have defined processes (such as a formal or developed method of inquiry) that are designed to identify the relevant personal circumstances for the required advice; whereas
(b)	the retail client as an unsophisticated consumer is unlikely to be able to volunteer the relevant information without appropriate prompting.
2.4	The concept of what is “reasonably apparent” introduces unnecessary complications and uncertainties in relation to ascertaining the client’s relevant personal circumstances.
2.5	Importantly, ASIC notes in its Regulatory Guide RG 200 that the objections to section 945A are that:
(a)	there is a need for clarity as to whether section 945A permits scaling advice and the scope of inquiry to a particular subject matter; and
(b)	failure to comply with that provision carries criminal sanction.
These concerns can be addressed within section 945A.
2.6	Please refer to the revised Draft FOFA Bill which shows suggested changes against the existing section 945A.
2.7	Changes to section 944A are also suggested in order to maintain consistency with existing provisions in the Act and new provisions arising under the Draft FOFA Bill.
2.8	Changes to section 945B reflect the application of section 945A to providers within the meaning of the proposed section 961.
3.	SECTION 961C – THE BEST INTERESTS DUTY
3.1	Section 961C has been revised to set out the core incidents of the best interests duty which are:
(a)	to identify:
(i)	the nature and scope of the advice required by the client; and
(ii)	the relevant personal circumstances of the client;
(b)	to give advice only where the provider has the requisite knowledge, skills and experience to provide the advice;
(c)	to give priority to the client’s interest if there is a conflict between the client’s interest and the  provider’s interest or that of any other person; and
(d)	comply with any other requirements prescribed by regulations made for the purposes of the best interests duty.
3.2	The limited obligations in relation to basic banking products under proposed section 961C(3) have been deleted as they coincide with the amended features of the best interests duty.
4.	Sections 961D, 961E and 961G
Proposed sections 961D, 961E and 961G have been moved to Subdivision C as they are relevant to the appropriateness of advice.
5.	SUBDIVISIONS D and E
5.1	Subdivision D has been deleted as it is covered under section 945B.
5.2	Subdivision E has been deleted as the duty to give priority to a client’s interests is now included in section 961C.
6.	SUBDIVISION F
6.1	The proposed sections in Subdivision F have been renumbered.
6.2	The relevant provisions that give rise to a contravention have been amended to accord with the changes to proposed section 961H (which is now section 961F) and the deletion of proposed sections 961J (which is redundant as section 945B has been retained), 961K and 961L (which are now incorporated in proposed section 961C).

Yours faithfully

Chris Ketsakidis
MAURICE BLACKBURN COMMERCIAL