Overtones of FOFA in LIF grandfathering
Life/risk advisers should learn from their experience of the Future of Financial Advice (FOFA) implementation and make sure they are sufficiently covered with respect to the grandfathering of remuneration arrangements under the new Life Insurance Framework (LIF), according to law firm, Hall and Wilcox.
In an assessment of the LIF changes announced late last week by the Assistant Treasurer, Kelly O'Dwyer, Hall and Wilcox lawyers, Adrian Verdnik and Krishna Skandakumar said the minister's statement suggested the legislation would operate in the same manner as the ‘conflicted remuneration' provisions introduced under the FOFA changes.
They said this meant that insurers would be prohibited from paying commissions and advisers would be prohibited from receiving commissions except as permitted under the legislation.
However, the pair said there would be specific exemptions that apply to level commission arrangements and remuneration paid by the client for advice on a ‘fee-for-service' basis.
Verdnik and Skandakumar said it was unfortunate that the Government had determined to include commissions received for providing general advice about life insurance in the prohibition, given the application of the ‘conflicted remuneration' provisions to general financial product advice had caused significant confusion in the industry since the FOFA provisions were introduced.
They noted that the majority of life insurers had already started moving toward a level-commission remuneration structure in anticipation of upfront commissions being prohibited or significantly curtailed.
On the question of grandfathering, the two lawyers said the Government's announcement suggested that insurers and advisers would be able to grandfather existing arrangements, with the grandfathering date likely to be 30 June 2016.
"However, we will await the detail of the legislative changes when released by the Government later this year. In the meantime, advisers and insurers should learn from the FOFA experience and start documenting existing remuneration arrangements if they want to rely on the grandfathering provisions," they said.
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