The Future of Financial Advice and the Effects on Portfolio Management

Abstract

The greatly anticipated first tranche of the draft legislation of the Future of Financial Advice (FoFA) reforms has been released by the Minister for Financial Services and Superannuation for public discussion and analysis. This tranche embraces the 'opt in' proposals, the 'best interest' duty and standard for advisers, and an augmentation of ASIC's powers to enforce the new legislative elements. ASIC lists some 259 reports into the financial services and related industries prepared since 1999, with a number of these reports directly investigating the issues of the quality of financial advice, disclosure arrangements when providing advice, and the specific issue of performance of various investment sectors and products. Despite some 11 years of reporting, the industry appears to be subject to another round of legislation under FoFA in an attempt to provide retail consumers with the professionalism and standard of advice which the industry would like to offer, the Government seeks to introduce and enforce, and which clients are suggesting through the greater use of direct investing and use of alternative investment strategies that are not being matched by performance outcomes. The purpose of this article is to discuss whether the introduction of the best interest duty conditions under FoFA will result in improved portfolio management and recommendations. Part 2 of this paper introduces an alternative view - a futuristic view - of how the financial advice industry might better encapsulate the professionalism and the overall efficiencies in portfolio management expected by clients.