Lawyer Provides Clarification on Grandfathering

0

Financial services legal expert, Claire Wivell-Plater, has confirmed that the new Future of Financial Advice (FoFA) grandfathering regulations do deliver on the Government’s promise to protect advisers’ revenue streams.

Managing Director, The Fold, Claire Wivell-Plater
Managing Director, The Fold, Claire Wivell-Plater

Following comments received from riskinfo readers on our earlier story (see: FoFA Grandfathering Regulation Made Law), we sought further legal clarification on the measures from The Fold’s Managing Director, Ms Wivell-Plater.

First and foremost, Ms Wivell-Plater reminded advisers that commissions for individual risk insurance products are not considered conflicted remuneration, and therefore are not subject to the grandfathering rules (ie: they can continue regardless of any changes to the advice arrangement).

In relation to conflicted remuneration which is subject to grandfathering (ie: commissions for group life risk policies inside superannuation whether it is for a default or another type of superannuation fund and individual life insurance policies for the benefit of a member of a default fund), Ms Wivell-Plater said advisers can be comforted by the regulations enacted by the Government in late December.

“The regulations are absolutely clear that, regardless of whether you change licensee or you sell your practice, as long as the grandfathered arrangement hasn’t changed substantially from when it was first established, it will continue on,” she told riskinfo.

If a benefit has changed substantially, the arrangement will be deemed a ‘new arrangement’ and therefore subject to the new FoFA rules. In order for a benefit to be considered to have changed substantially, Ms Wivell-Plater suggested the following are likely to have occurred:

  • A change to the way the benefit is calculated
  • An alteration to the criteria that are used to determine when the benefit is paid
  • A new rate/percentage being applied to the benefit calculation

She also warned advisers to be careful in relation to grandfathered commissions for insurance inside superannuation. In some circumstances, superannuation fund members are transitioned from one offer to another by the fund (eg: when the member leaves their employer but retains the same super fund they may be transitioned from a ‘corporate’ division to an ‘individual’ division). This scenario has been raised by some as potentially triggering a substantial change to the arrangement and therefore discontinuing any grandfathered benefits related to that client.

“If it was an option in an existing fund and the member is moving between options, that’s probably okay,” said Ms Wivell-Plater. “But if it was an entirely new product then those benefits may no longer be payable.”

Advisers are reminded to seek out their own legal and compliance advice if they are uncertain if they are in breach of any financial services legislation.