The Acting Assistant Treasurer has announced the Government’s final policy changes to the FOFA provisions.
The Government will proceed with its previously announced policy changes except in relation to commissions:
- removing the need for clients to renew their ongoing fee arrangement with their adviser every two years;
- making the requirement for advisers to provide a fee disclosure statement only applicable to clients who entered into their arrangement after 1 July 2013;
- removing section 961B(2)(g), the ‘catch-all’ provision, from the best interests obligation; and
- better facilitating the provision of scaled advice.
Conflicted remuneration
The Government will permit “balance scorecard” incentive payments (such as a bonus for overall work performance and total volumes of financial products sold) but it will prohibit any payment related to the provision of general advice for a specific product for a specific customer including an upfront or a trailing commission.
The incentive payments will only be permitted if:
- The person providing the general advice is an employee of the financial product provider and transparently operates under the name, trademark or business name of the product provider; and
- The person did not provide personal advice (other than in relation to basic banking, general insurance or consumer credit) to any retail client over the previous 12 months; and
- The general advice is only be provided in relation to products issued or sold by the provider, or under the name, trade mark or business name of the provider.
The legislation and the regulations will provide an explicit prohibition on:
- Any payment made solely because a financial product of a class in relation to which the general advice was given has been issued or sold to the client; and
- Any recurring payment made because the person has given the general advice.
The Act will be amended to permit regulations that may prescribe circumstances in which all or part of a benefit is to be treated as conflicted remuneration.
Grandfathering
The Government will also amend the FOFA grandfathering provisions to enable advisers to move to other licensees with their clients whilst continuing to receive grandfathered remuneration.
Regulations
The Government intends to implement most of the changes to FOFA through regulations to take effect on 1 July 2014, subject to disallowance by the Senate.
The following changes will be implemented through amendments to the Corporations Act and not through regulation:
- Clarification of the operation of the volume-based shelf-space fees;
- Extension of the time period advisers are required to send a fee disclosure statement to a client in an ongoing fee arrangement from 30 to 60 days after the client’s anniversary date; and
- Expansion of regulation-making powers in relation to the conflicted remuneration provisions to allow the Government to react quickly to address unintended consequences or if industry were found to be misusing the provisions.
