The draft Future of Financial Advice (FOFA) legislation announced this morning hasn’t thrown up too many surprises, with the two-year opt-in period included and commissions on group life insurance within superannuation being banned.

The draft bill states that advisers wanting to charge an ongoing fee to retail clients will have to provide renewal notices to clients as well as annual fee disclosure statements.

The new regulation will apply to new clients from July 1 next year.

There are few significant developments in this tranche of the legislation for general insurance intermediaries, although a second FOFA draft bill is expected shortly.

The “soft dollar” ban has been extended to life insurance products outside superannuation, but the Government has excluded applying it to general insurance.

The draft bill also includes a definition of “best interest obligations” which will apply to both financial advisers and general insurance brokers.

The draft bill says when a person is providing personal advice to a retail client they must act in the best interests of the client, and “give priority to the interests of the client in the event of conflict…”

The penalties for breaching the best interest guidelines have been set at up to $250,000 for individuals and $1 million for corporate entities.

Assistant Treasurer Bill Shorten says there will be significant flexibility on how advisers are able to meet the opt-in requirements.

“Opt-in won’t create a significant new impost for advisers who are in regular contact with their clients,” he said.

Group life insurance commissions are to be banned from all policies within superannuation, including default funds and the proposed MySuper products, from July 1 2013.

“These reforms will mean that MySuper will be commission-free,” Mr Shorten said.

However, commissions on individual life polices within self-managed superannuation funds will be allowed.

From July 1 2013 life insurers will have to disclose in both dollar and percentage terms all commissions on new and renewed policies.

The Government is allowing a claw-back provision to enable life insurers to recover some or all of the commission paid if a policy turns over early.

Mr Shorten says the Government will work with the financial services industry and consumer groups to introduce “uniform ‘claw-back’ provisions” to stop advisers shopping around for the most generous arrangements.

He says the Government will also work with the industry to find an effective way to legislate against churning.

The soft dollar ban means an adviser would not be allowed to accept a soft-dollar benefit unless it explicitly relates to a product.

More details on both life insurance commissions and conflicted remuneration will be included in another draft bill to be released later.

“The second tranche (of the draft bill), which I expect to release for public consultation shortly, will include the ban on conflicted remuneration (covering commissions and volume payments), the ban on soft-dollar benefits, the ban on asset-based fees (where there is gearing), and the definition of intra-fund advice,” he said.

The powers of the Australian Securities and Investments Commission (ASIC) are also being strengthened under the draft bill.

ASIC will be able to refuse a financial services licence to a person who it believes will be “likely to contravene “ their licence obligations. 

The industry now has until September 16 to comment on the draft legislation.