The Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 finally passed both Houses on 4 July 2024 and is awaiting Royal Assent. Background.
UPDATE: Assented to 9 July 2024.
The Act implements the first phase of recommendations from the Quality of Advice Review including:
- when and on what basis a trustee can charge a fee for financial product advice from a member’s superannuation interest
- the circumstances in which providers of financial product advice can make FSG information available on their website, as an alternative to providing an FSG to a retail client;
- that commissions for relevant insurance products received by persons who provide general advice remain exempted from the ban on conflicted remuneration.
The second tranche of reforms will be developed over the second half of 2024.
This includes the government’s commitment to reform statements of advice, modernise the best interests duty and remove the safe harbour steps, and increase the provision of advice by financial institutions.
Conflicted remuneration by ADI’s
Section 963J of the Corporations Act prohibits an employer of an AFS licensee or an authorised representative of a licensee from giving conflicted remuneration to the licensee or authorised representative for work they carried out as an employee of that employer.
However, section 963D currently provides an exception to this prohibition for benefits given by an Australian ADI to a licensee or authorised representative for recommending a basic banking product, general insurance product or consumer credit insurance. The exception permits employees of an ADI to receive sales incentives from their ADI employer, including volume or sales-based incentives.
This is consistent with recommendation 13.5 of the Quality of Advice Review, that the conflicted remuneration provisions should operate consistently by placing agents and employees of Australian ADIs in the same position as employees of other financial institutions.
The removal of the exception is not intended to prevent ADIs from providing their employees with performance related benefits and incentives under a balanced scorecard approach that includes a broad range of criteria.
The repeal of section 963D applies to a benefit given to an AFS licensee, or an authorised representative of an AFS licensee, under an arrangement that was entered into, or varied, on or after 6 months after the commencement of the Act. For the repeal to apply to an arrangement that was varied, the variation of the arrangement must relate to the giving of benefits under the arrangement.
The application provision relating to ADI employee benefits reflects the possible existence of employment contracts with remuneration based on volume of sales bonuses that rely on the exception currently in section 963D, or other existing contractual arrangements that relate to monetary or nonmonetary benefits permitted under section 963D.
The 6-month transitional period allows ADIs time to adjust existing remuneration structures before the commencement of the repeal of section 963D.
Superannuation advice fees
The Act repeals and replaces section 99FA of the Superannuation Industry (Supervision) Act Act, which applies to financial advice fees charged directly to individual members.
Section 99FA(1) as amended replaces the current language ‘must not directly or indirectly pass [on] the cost of providing financial product advice’ with ‘must not charge against a member’s interest in the fund the cost of providing financial product advice’.
Section 99FA(1) as amended sets out revised requirements to be satisfied in order for the trustee (or trustees) to charge the cost of advice against the member’s interest in the fund.
Trustees are expected to apply appropriate oversight controls to ensure that advice fees are consistent with the following requirements:
• the financial product advice is personal advice and is wholly or partly about the member’s interest in the fund;
• the amount charged does not exceed the cost of providing financial product advice about the member’s interest in the fund;
• the trustee charges the cost in accordance with the terms of a written request or written consent of the member;
• if the arrangement under which the advice is provided is an ongoing fee arrangement – any applicable requirements of Division 3 of Part 7.7A of the Corporations Act are met in relation to the arrangement and, if relevant, the deduction of ongoing fees;
• if the arrangement under which the advice is provided is not an ongoing fee arrangement – the request or consent satisfies the requirements in subsection (2); and
• the trustee has the member’s request or consent, or a copy of it.
Commencement dates
Amendments to the Superannuation Industry (Supervision) Act 1993 commence the day after Royal Assent. The amendments apply to costs charged on or after six months after commencement.
Changes to ongoing fee arrangements commence the day after Royal Assent. The amendments apply to any new arrangements entered into on and after six months after commencement, and any existing arrangements on and after the anniversary day of those arrangements.
Flexibility for FSG requirements commence the day after Royal Assent.
Conflicted remuneration changes commence immediately after the commencement of the ongoing fee arrangements.
The amendments in relation to the repeal of section 963D of the Corporations Act (relating to ADI employee benefits) apply to any arrangement entered into, or varied, on or after six months after commencement, or to any benefits given (other than as part of an arrangement) on or after six months after commencement.
Standard consent requirements for certain insurance commissions commence 12 months after Royal Assent. The amendments apply to benefits given on or after 12 months after commencement.
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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.
