December 20, 2013
The Government has announced it will amend the ban on conflicted remuneration for life insurance inside super so that it will only apply in circumstances where no personal advice has been provided.
The Assistant Treasurer, Senator Arthur Sinodinos, today released a highly anticipated package of reforms to the Future of Financial Advice (FoFA) legislation. Among the amendments is a change to the ban on commissions for life risk insurance products held inside super.
Going forward, the ban on conflicted remuneration will only apply to cover which is provided inside a default (MySuper) superannuation fund. Commissions on life insurance products inside super for which personal financial advice has been provided will not be considered ‘conflicted remuneration’.
The Senator also confirmed the Government would remove the retrospective application of the fee disclosure requirement, so advisers will only need to provide an FDS to clients who entered into an advice arrangement post 1 July 2013 (the FoFA commencement date).
There are 14 amendments in total, including the following:
The Government will remove the opt-in requirement completely, so advisers will not be required to seek their client’s commitment to proceed with advice services every two years.
Best interests duty
The best interests duty will be changed so the ‘catch-all’ provision (s961B(2)(g)) no longer applies. The Senator said this would provide advisers with certainty that they have satisfied all their obligations under the duty.
Clients and advisers will be permitted to explicitly agree on the scope of financial advice to be provided, whilst ensuring advice is still appropriate for the client.
The Government will amend the existing grandfathering provisions, that exempt certain benefits under pre-existing arrangements from the ban on conflicted remuneration, to allow advisers to move between licensees and to continue to access grandfathered benefits in certain circumstances.
Amendments will also be made to clarify the operation of the grandfathering arrangements with respect to the sale of financial planning businesses, superannuation to pension switches under multi-product offerings, and employed advisers becoming self-employed advisers.
…the FoFA reforms will save the financial services industry an estimated $90 million
“Consistent with the Coalition’s election commitment to reduce compliance costs for small business, financial advisers and consumers who access financial advice, the Government will undertake a package of amendments to improve FoFA,” Senator Sinodinos said.
“Our consultation with industry indicates that the Abbott Government’s FoFA reforms will save the financial services industry an estimated $90 million in implementation costs and reduce annual compliance burdens by an average of approximately $190 million per year.”
To read about the industry’s reaction to the proposed changes, click here.