The Federal Government has released the latest round of its Future of Financial Advice (FoFA) draft legislation, which provides further detail around the treatment of conflicted remuneration and other banned remuneration.
This latest exposure draft also provides further detail around soft dollar and volume bonus payments.
A summary of the key elements of the exposure draft impacting the life insurance sector includes:
Commissions
The Bill confirms that from 1 July 2012 there will be a ban on commissions to licensees and their representatives for the distribution of products. Life risk insurance (other than group life within superannuation, including default funds) is exempt from this ban.
Specifically, the draft legislation states:
In the case of a benefit from a life insurance company to a licensee or representative, the benefit will not be conflicted remuneration if it is given in relation to a life risk insurance product other than a group life policy for the benefit of members of a superannuation entity, or a life policy for a member of a default superannuation fund. This ensures that commissions on group risk inside superannuation are prohibited, and commissions are also prohibited on any life insurance policies which are for the benefit of members of a default superannuation fund. Commissions will still be permissible on individual life risk (non-investment-linked) policies within superannuation for non-default (‘choice’) funds. Commissions will still be permissible on life risk (non-investment-linked) policies sold outside superannuation.
Payments to licensees by product issuers
Product issuers will not be permitted to give monetary or non-monetary benefits to a dealer group or advisers, whether or not it is considered ‘conflicted remuneration’.
However, this ban does not appear to extend to payments made in relation to life risk insurance, thereby allowing some payments from life insurers to licensees to continue:
In the case of a benefit from a life insurance company to a licensee or representative, the benefit will not be conflicted remuneration if it is given in relation to a life risk insurance product other than a group life policy for the benefit of members of a superannuation entity, or a life policy for a member of a default superannuation fund. This mirrors the exclusion outlined in the definition of conflicted remuneration.
Soft dollar
Soft dollar payments, that is non-monetary benefits, over $300 will be banned from a product issuer to a licensee or adviser, even if the payment does not directly conflict advice.
However, as previously indicated, the soft dollar ban will not apply to benefits for education and training (professional development exclusion) or the provision of IT software or support.
The Government has clarified the professional development exclusion by setting the following criteria:
- Domestic requirement – the professional development must be conducted in Australia or New Zealand
- Majority time requirement – where 75 per cent of the time (during standard day of 8 hours or equivalent time) is spent on professional development. In a standard 8 hour day, this takes into account a one hour lunch break, as well as another hour that might be applied to other activities such as networking
- Expenses – any travel costs, accommodation and entertainment outside of the professional development activity must be paid for by participants or its employer or licensee
Click here to view the Exposure Draft of the second tranche of FoFA legislation.
In an early response to its release, the Financial Planning Association (FPA) has welcomed the Government’s decision not to ban advised insurance commissions inside superannuation, saying it had convinced the Government that this would have created a double standard and further worsened the under-insurance problem.
In a statement issued yesterday, FPA CEO, Mark Rantall, said: “In respect to the details released today, the FPA supports the banning of investment commissions and other conflicted remuneration as this will promote trust and confidence in financial advice and provide a better outcome for all consumers.”
“We also support the banning on soft dollar benefits which further supports our existing joint venture with the Financial Services Council (FSC) – setting an industry benchmark on how alternative forms of remuneration paid by third parties are managed and disclosed.”
riskinfo will provide further updates on the key issues stemming from the release of this latest draft FoFA legislation, including clarification of treatment of commissions for group risk outside superannuation, and payments (both monetary and non-monetary) from insurers to advisers.
Industry consultation on the legislation is open until 19 October 2011.
Great I have always argued against off shore conferences, wast of time, our business is in Australia, most of our asset allocations are linked to Australian assets, why sit in a room in Las Vegas when you can sit in a room in Melbourne! Save time Save money!
The sooner this gov’t is ousted the better.
Full disclosure and a fiduciary duty to our clients is all that is required. If you control the maximum fees/costs at a PDS or Prospectus level that avoids any conflicts of interest chasing 10% instead of 4% payment!!
If I can produce an full SOA for $3,000 why is the planner down the road charging $10,000 for the same SOA?
If you want to regulate costs then have an indicative fee scale similar to what other professionals use.
What gives the govt the right to dictate how I get paid when they blatantly use our tax payer dollars to do what the want!!!
Not happy :(.
I’d like my income taxes & Council Rates on a lump sum fee for service basis rather than an evil % basis. I also want an opt-in each year so I can decide whether to keep paying for the services offered.
And the FPA & FSC support this.
Thanks a lot. !!!
I am just on my way to meet a mate who has returned recently from an overseas trip fully paid for by a supplier.Doctors are frequently the recipients of ‘soft dollar’benefits.Dare I say union officials(of which Mr Shorten was one)recieve benefits.All of the previous occupational examples are not reqired to undergo the scrutiny planners must.FPA get off your knees and support those who pay your wages and do it very quickly.
The paternalism of the current “club mentality” Government are truly over-powering. Why don’t they come out and say that they are about controlling the role of free enterprise in favour of their mates.. with all its nepotism, lack of efficiecy and transparency AND lack of accountability to those they pretent to act in the best interest for!!
The chickens will come home to roost but why do we have to be driven mad by their dishonesty.
Disclosure and client best interest, given the regulators role, along with massive fines that can now be applied for breaches should be sufficient, without this totally prescriptive and paternalistic legislative approach.
Keep up the pressure on the winds of change, and the sooner the better!!
Next we will be in brown suits marching and saying “all hail the red head. The master!!”
Communism lives in Australia it’s called the Labour/Green govt
If you’re a Financial Adviser and you voted for them, well them you helped this happen!!!
The irony is that the real conflicts of interest in the industry are:
1. The govt. In bed with industry funds.
2. The FPA. In bed with the govt.
Isnt it true that FPA employees have their super in industry funds!?
The ONLY reason I am an FPA member is to keep my recently obtained CFP status. They certainly do NOT represent my views and are completely out of touch to think that they represent their members interests.
I think everyone needs to bare in mind that the native frog opulation is in decline. Just like cane toads, this policy will have repercussions.
Isn’t it amazing!The organisers of FOFA can spend all this time and waste every body else’s time waiting for their anouncements, with really only idealism to back their reasons. While the industry funds still have not been FORCED TO exspose their losses on property over the last 2 or 3 years like all the commercial funds have.
The failure of Storm – the timber funds and opies – prime were recently blamed for our terrible industry and how all of us are budding Storm operators, if they keep going like this there wont be anyone left in the industry Real ESTATE IS LOOKING GOOD even mortgages full time are looking better.
But wait, there is a sting in the tail of the grandfather clause on commission on existing funds.I have a small book of what began as occupational funds about 2.5ml some with cover most with default cover that was available but NOT REQUIRED by the unions. we ALSO HAD SIGNED AUTHORITIES TO REPRESENT CLIENTS IN THE INDUSTRIAL COURT( late 80’s early 90’s)
These funds over the next three years are to be absorbed into MY SUPER AND WILL CEASE TO BE MY CLIENT as I understand something I read last week. Any body notice that in anything thats past your gaze ?JG
Non-monetary benefits over $300 will be banned – what a joke.
I’m not a big beneficiary of soft dollar benefits personally, but if an Adviser has supported a certain company for all the right reasons then why shouldn’t they be rewarded for it. $300 doesn’t go a long way these days. Doctors don’t disclose to their patients non-monetary benefits they receive from certain drug companies. And I bet it’s a lot more than $300 worth.
Disclosure is the key here. Clients aren’t going to care whether the soft dollar benefit is $300 or $3,000 as long as their Adviser is upfront about it.
Have just glanced over the article about joooliaaaa atending the industry funds lunch or launch or wht ever it was. HER COMMENT SAYS IT ALL ! NOW IT’S COMMING OUT .tHIS WHOLE THING HAS BEEN PLANNED AND SCRIPTED AS WELL AS KEATINGS INTRODUCTION OF INDUSTRY FUNDS THROUGH AMBIT CLAIMS IN THE INDUSTRIAL COURT.
We have been had and the FPA MEMBERS WHO ARE NOT ON WAGES TO ONE OF THE LARGE PRODUCT PROVIDERS WOULD DO WELL TO DIVEST THEM SELVES OF MEMBERSHIP AND JOIN A GROUP THAT CARES ABOUT SMALL BUSINESS. JG
My Licensee (in the top 6)recently refused to renew their membership of the FPA, because they felt the FPA wasn’t working in our best interests…seems they were right
I did remain a loyal member and renewed my individual membership,hoping the FPA would use the compulsory advertising levy wisely and get stuck into the REAL conflicts of interest,that plague our industry…boy was I wrong
I have spoken with several clients who understand our plight and they suggested the recent campaign was seriously “weak” and we came off as “elitist”
Thanks FPA..just like “Darryl the dummy”..you have done it again….Don’t expect my support next year.
That’s my understanding John G (and I emailed this to the FPA last night)..I think the super arena will be legally off limits for us within 2 years…we are being systematically being squeezed out….
Any prediction on the no. of paid up members of the FPA in 2 years?
Clearing the way for 15% SGC.
Let the big money roll in!
Who gains?
Industry funds and their mates in government.
Mark Rantall could get a job there after all his help.
Saw the same thing this morning – joolia and her union buddies!!!!
My clients are not interested how I get paid for the services I provide – just like any other form of transaction we agree on a cost and that it.
I’d like to see if one of the supermarket chains had to disclose how much it cost them for an item compared to what we were paying for it. It would be too difficult to come up with numerous other examples.
Good question ‘spot the conflict’. Can Mark Rantall please disclose where the FPA has its own super fund. How many employees are in industry funds????
sorry … meant to say it ‘wouldn’t be too difficult …’
This will lead to lots more Donuts. Thats all I’ve had recently. Going forward all I can see is donuts, donuts and more donuts.
The winds of change have never ever been swifter since this shambolic Green Union Indepependent Labour( spelt as it really is) unholy wrecking machine has taken over. Like many of you i have seen all the changes over the last 25-30 years. It is not needed to this extent. Also what is the Gov doing to the economy. This is vital to all business surviving. A taxed and pummled economy will falter, mining boom or not.
Well the FOFA nonesense is being rolled out by this useless wasteful minority government all in cahoots with the industry super network. There was Jiliar spruiking at their meeting and praising the chief clown Whiteley for his input to FOFA, well there you go, a conspiracy.
The whole thing stinks and my only consolation is that this incompetent mob are on the countdown to oblivion, please let it happen before the next election is due.
Funnily enough, the media is reporting just this week, that farmers only received 35 cents per kilo on some produce, which the big supermarkets promptly mark up……at 1000%.
What a surprise. This is what happens if you allow the big players to take control …..so much for protecting the consumer.
So,lets just hand over total control of the “retirement wealth of this nation” to those who have stopped at absolutely nothing,to get control…….you know, those who have spent zillions of dollars to undermine the process and competition (who are all shonky anyway, cos they earn commissions and their conferences, though disclosed, may be subsidised)
Of course we have to “scale down” the rules that protect the consumer, cos the fees will go up……and we know we can trust the big players.
Meanwhile, let’s make it as difficult as we can for the competition (those pesky overpaid advisers)to even object,in fact,lets stir them up so much, they leave the industry, which ultimately is better…we don’t need them.
and guess what..ho ho ho …their union,WILL NOT EVEN BLINK.
As said earlier today..the FPA needs to get off their knees and force the Govt to deal with the real issues…we have to take them to task.
Take heed Julia…serious repercussions ahead.
The last few years have felt like the death of a thousand cuts. We pay our FPA membership fees for support, strength and professional unity. We ultimately watched a Prime Minister spring up across two terms of Government, without being elected once. We have had to deal with the Industry Funds continued suppression of quality advice for consumers. We have had market volatility and the GFC. We have had to endure the circus that is the “Greendependour” minority Government and the hits just keep coming!!!!
On a positive note, we take just reward for the quality advice, strategies, ongoing care, advice and support for our clients. All in the interests of helping clients become independently wealthy. Which, in turn eases the coffers (social security impact) of the very Government that is letting us down.
The FPA licks balls.
Gee those FPA blokes have really stepped up and helped us out.
How they can talk themselves up and act like we all should be thankful to them is beyond me. They should hang their heads in shame, they have rolled over and let us down.
They fully support this !! What a disgrace they are.
Just came across a client 59 NB with $500,000.00 Death only cover with InsuranceLine (Tower Direct)which he purchased from a TV add over the phone, currently paying $385.00 per month.
Same cover level with Zurich $244.89 per month.
What should I do ? Don’t want to be blacklisted as a Serial Churner if you get my drift. Now tell me who are the bad guys here ? Me the Churner or Insuranceline for ripping it out of this guy, and by the way they don’t pay commissions on their direct product. Who is there to protect his rights, only the serial churners perhaps. Tower really care for the consumer NOT.
Straight up Arnold. If you churn, you burn. In this case you must be stern, because its your concern to get a return.
Just got off the phone with the soon to be (again) Prime Minister Rudd and he thought FOFA stood for f..k off foreign affairs…and could not see what all the fuss was about!
I just filled out a survey for the news item about more advisors charging fees for risk advice. It was skewed and lopsided to get the result required. It asked a question about % of income from new bus renewals and what they termed commission we dont work for in prettier wordsie old client we dont need to see, or occupational clients who have passed through an emplyoer. I tried not to answer it but got sent back and told to use no’s So I put 1 in each box and got through to the next page.
FROM that point on I thought the questions ere laoded to wrd fees. IT ASSUMED YOU HAD ALREADY
STARTED TO CHANGE TO FEES AND THE ANSWERS DID NOT ALLOW FOR AN ANSWER OF NO / N/A OR NIL SO THE ONLY COMPLETED SURVEYS WOULD SHOW WE ALL ARE TRANSITIONING TO FEES WHICH WILL NOT BE ACCURATE. It does a lot of damage if published and also the instigator has a vloume for sale about how to transition to fees at a price of about $2500.00. they are offering one as a prize for entering the survey.So if you enter and put in 1 1 1 in the income questionyou may get through ans confound the survey .Bend it like an America’s cup yacht mast. JG
SORRY ABOUT THE GRAMMER AND SPELLING I WAS IN A HURRYAND A BIT INCENSED JG
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