The Treasury has released two consultation papers to gauge industry feeling on conflicted remuneration and grandfathering ahead of government amendments to the Corporations Regulations Act.
While little detail has been forthcoming, particularly on how grandfathering will work in practice between platforms and licensees or when a planning practice is sold, the exposure drafts provide a starting point for debate.
The deadline for industry consultation is June 5.
The Corporations Amendment (Future of Financial Advice) Bill 2012 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2012 (the Bills) passed the House of Representatives in March but a number of amendments to the Corporations Regulations Act of 2001 will accompany the reforms.
Central to these is the defining of grandfathering arrangements, fee arrangements and conflicted remuneration under FoFA.
Specifically, the amendments look to exclude product fees from the definition of an “ongoing-fee arrangement”; introduce a delayed application date of July 1, 2013 for the ban on conflicted remuneration with respect to group life risk insurance inside choice superannuation funds and all life risk insurance policies in default superannuation funds; exclude benefits given for advice relating to interests in time-sharing schemes from the ban on conflicted remuneration; and provide further details to the exemptions from the ban on conflicted remuneration for certain non‑monetary (‘soft-dollar’) benefits and introduce record-keeping requirements in relation to those benefits.
The intention of the grandfathering arrangements is to preserve any existing contractual rights to receive ongoing-product commissions, but not to allow commissions on ‘new’ financial products acquired on or after the application day.
“With this regulation in place, section 1528 of the Act continues to grandfather benefits based on investments in financial products acquired before the application day,” states the draft amendment.
“Further, benefits based on additional investments in financial products acquired before the application day, including the reinvestment of returns on investments in such financial products, will also not be subject to the ban on conflicted remuneration.”
Dante De Gori, general manager, policy and government, at the Financial Planning Association’s (FPA), says the unbundling of product fees from advice fees on fee-disclosure statements was a great result for the industry.
Under the proposed amendments, product fees will not be considered part of an ‘ongoing-fee arrangement’, effectively a concession by government that it would be almost impossible for advisers to detail and disclose all trail commissions to existing clients.
It should be noted that the regulations are specific to non-platform arrangements.
