New FOFA regs clarify grandfathering and fees
New draft Future of Financial Advice regulations released yesterday by Treasury clarify grandfathering arrangements, fee arrangements and conflicted remuneration.
The proposed amendments to the Corporations Act clarify that the grandfathering of any conflicted remuneration does not extend to benefits given in relation to new clients or new financial products.
The ban on conflicted remuneration does not apply if the benefit is given under an arrangement entered into before the day of commencement, and if the benefit is not given by a platform operator, the regulations state.
The regulations have the effect of "grandfathering all payments under an arrangement entered into before the application day".
The Financial Planning Association's (FPA's) general manager policy and government Dante De Gori said this would seem to indicate that where a book of clients is sold or there is a change of ownership at the licensee level the grandfathering would continue to apply.
The regulations state "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".
However, De Gori also pointed out that the regulations are specific to non-platform arrangements.
"They haven't been specific in dealing with volume rebates between the platform and the licensee," he said.
De Gori said he expected the grandfathering arrangements outlined in the new regulations would be replicated in the platform environment, but currently it isn't clear, and the FPA will be raising the issue as part of its consultation with Treasury.
The original ban on conferences being held outside of Australia and New Zealand had been one of the controversial aspects of legislation, but De Gori said the new regulations also allow for the continuation of overseas conferences where it can be demonstrated 75 per cent or more of conference time is spent on education and development.
The new amendments also:
- exclude product fees from the definition of an 'ongoing fee arrangement';
- introduce a delayed application date of 1 July 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; and
- exclude benefits given for advice relating to interests in time-sharing schemes from the ban on conflicted remuneration.
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