Brokers will be facing new regulations to ensure they act in the best interest of their clients under the draft Future of Financial Advice (FOFA) Bill.

Until now the Corporations Act didn’t require a broker to act in the client’s best interest, but that will change as the bill states individuals who provide personal advice to retail clients must “act in the best interests of the client when providing that advice”.

It also states the broker must give priority to the client’s interests when there is a conflict. 

To focus the broker’s mind on meeting these requirements, the bill has set substantial fines for any breaches.

The maximum penalties will be $250,000 for an authorised representative or licensee and $1 million for corporate entities. 

National Insurance Brokers Association (NIBA) CEO Dallas Booth told insuranceNEWS.com.au he is looking very closely at this section.

“We are trying to understand the black letter law, but NIBA members have already been looking after their clients,” he said. “It is not in their own best interests to not be looking after them.”

Mr Booth says he can’t understand why general insurance has been caught by the legislation when there have been few disputes involving general insurance brokers.

The Australian Securities and Investments Commission has also been given new powers to ban an Australian financial services licensee if they are “not of good fame and character or not adequately trained or competent” to provide financial services.

While general insurance brokers have escaped the bans on commissions for products sold through superannuation, as well as the ban on soft-dollar payments, there is still further FOFA legislation to come.

Assistant Treasurer Bill Shorten says the second tranche will include the ban on conflicted remuneration, including commissions and volume payments. It will also include the ban on soft-dollar benefits.

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