Treasury has released exposure drafts of the FOFA Regulations on Grandfathering and the first package of amendments in the Corporations Amendment Regulation 2012 (No. ) containing provisions relating to charging ongoing fees to clients and conflicted remuneration.
The first package of amendments:
•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;
•exclude benefits given for advice relating to interests in time-sharing schemes from the ban on conflicted remuneration;
•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.
Grandfathered remuneration arrangements
Section 1528 of the Corporations Act will grandfather benefits based on investments in financial products acquired before the application day.
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.
The draft FOFA Grandfathering Regulations clarify that the section 1528 grandfathering of any conflicted remuneration does not extend to benefits given in relation to new clients or new financial products acquired on or after the application day, which is the earlier of the day on which a person elects to be bound by the obligations and prohibitions imposed under Part 7.7A which provides for a ban on conflicted remuneration, or 1 July 2013.
The intention of the grandfathering arrangements is to preserve any existing contractual rights to receive ongoing product commissions: there can be no existing contractual right to commissions based on financial products that may be acquired in the future. Any such commissions are not intended to be excluded from the ban.
Draft subregulation 7.7A.4.16(2) explicitly applies the ban on conflicted remuneration to a benefit given by someone other than a platform operator, under an arrangement that was entered into before the application day, in relation to an investment in a new financial product. A ‘new financial product’ is defined by subregulation 7.7A.4.16(3) as a financial product acquired on or after the application day.
Because the application day is likely to vary between different persons, it will be a matter for each person making or receiving a payment to determine whether the payment can be made or received without breaching Division 4, depending on the date on which the person elects to be (or becomes) bound and the capacity in which the person makes or receives the payment.
Background
The Corporations Amendment (Future of Financial Advice) Bill 2011 and the Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011 have been passed by the House of Representatives and are awaiting consideration by the Senate. More
