Door Open for Volume Bonuses to Continue – FoFA Tranche 2

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Financial Services Minister, Bill Shorten, has left open the potential for advisers to continue to receive volume bonus payments under Future of Financial Advice (FoFA) reforms.

Mr Shorten tabled the second tranche of the FoFA legislation in the House of Representatives today, noting in his speech that there were circumstances under which additional payments from product providers did not represent a conflict of interest:

“For the most part, advisers will not be able to receive remuneration from product issuers or from anyone else which could reasonably be expected to influence financial advice provided to a retail client.”

But Mr Shorten added:

“If an adviser is confident that a particular stream of income does not conflict advice, then these reforms do not prevent them from receiving that income.”

This example was then cited by Mr Shorten:

“For example, in the case of the receipt of income related to a volume of product sales or investable funds, there is a presumption that the income will conflict advice. However, this is a presumption only. And if the adviser can demonstrate the receipt of income does not conflict advice, then such remuneration will be permissable under the Bill.”

The Minister emphasised that if there is doubt about whether certain remuneration will conflict the advice that the adviser provides to the client, the adviser will be prudent to err on the side of caution.

Best Interest duty

The statutory Best Interest duty, which was omitted from the first Bill, features prominently in the new document.

The new Best Interest duty closely follows the original guidelines set out in the Government’s Exposure Draft (released in August), although includes a provision that the provider must identify the subject matter of the advice, regardless of whether the advice is sought explicitly or implicitly by the client.

ASIC has also been granted the power to recommend civil action for loss or damage if a provider contravenes the duty.

Grandfathering

As expected, the ban on conflicted remuneration (including volume-based shelf-space fees) does not apply to arrangements entered into prior to the date the legislation commences.

The best interest duty will apply to existing clients but only from the date legislation begins.

Advisers wishing to access the specific wording in relation to what may be permissable  regarding conflicted remuneration can refer to section 963L in the legislation (note the phrase: ‘… unless the contrary is proved’).  Click here to access a copy of the second tranche of the FoFA Bill.

To view a copy of the explanatory memorandum, click here.