The Financial Planning Association has welcomed the federal government’s draft amendments to key conflicted remuneration measures as a “common sense compromise”.
FPA chief executive Mark Rantall said the announcement walked a middle ground between the intentions of the Future of Financial Advice (FoFA) reforms and the practical implications for financial planners.
He further welcomed the delayed start date to the conflicted remuneration “grandfathering” provisions contained within the FoFA regulations.
Late on Monday afternoon, the Australian Securities and Investments Commission (ASIC) released finalised guidance on the practical operation of the ban on conflicted remuneration and how the regulator will administer it.
The ban is part of the FoFA reforms and applies to both personal and general advice given to retail clients about any financial product, including managed investments, superannuation and platforms. It applies to commissions, volume-based payments, soft dollar benefits and volume-based shelf space fees.
Regulatory Guide 246 Conflicted Remuneration (RG 246) follows consultations throughout last year, including a consultation paper released in September 2012.
‘The key principle underlying the conflicted remuneration ban is to ensure the interests of advisers and retail clients are more closely aligned, improving the quality of advice provided,” said ASIC commissioner Peter Kell.
“Complying with this ban means payment structures used in some business models or delivery channels will need to change. We will continue to work with industry as they implement these changes.”
Transition wish
While a number of lawyers and industry commentators contacted by Professional Planner Online were still digesting the 70-page guidance, a transition period after July 1 had been on the wish list for many licensees.
“We are more likely to scrutinise financial product advice to retail clients for compliance with the Corporations Act if following the advice means that the AFS licensee or their representative receives a grandfathered benefit. An example might be if the advice is to purchase or retain a financial product for which an AFS licensee will receive a grandfathered benefit,” states ASIC in RG 246.
However, it goes on to make the point that Treasury is consulting on regulations that will modify the scope of the transitional provisions.
Grandfathering in practice
The Corporations Amendment (Further Future of Financial Advice Measures) Act 2012 amends the Corporations Act 2001 to introduce a ban on conflicted remuneration for financial services licensees and their representatives.
The new section 1528 in the Corporations Act 2001 and the Corporations Amendment Regulation 2012 (No. 8) “grandfathers” certain benefits from the application of the ban on conflicted remuneration.
The draft Regulation amends the current arrangements to grandfather certain benefits that relate to the investments of existing clients prior to July 1, 2014. The ban on conflicted remuneration will apply to all new clients after this date.
“We believe the transition period to July 1, 2014 for all licensees/dealer groups is in order to allow an orderly and appropriate transition to the new rules. This sensible arrangement would allow all financial planning businesses to transition and restructure in a manner which does not adversely impact their clients nor their business,” said Rantall.
Conflicted again
Joel Edelman, an adviser and director of Principal Edge, said he agreed in principle with eliminating conflicted remuneration and has been trying to introduce a flat fee model with appropriate clients for many years.
“The risk is what becomes perceived as conflicted remuneration should be carefully considered before decisions are made,” he said.
“Advice placing the client first should not be considered as conflicted remuneration even if it results in a fee to the advice provider. Conflicted remuneration is based on the assumption that the product or advice that results in the highest revenue will always be recommended first. Our concern is the subjective definition of conflicted remuneration, as the opinions vary broadly over what conflicted remuneration is.”
