The Government has released further draft regulations on the grandfathering of conflicted remuneration benefits under its Future of Financial Advice (FoFA) reform legislation.
The proposed regulations relate largely to payments from platforms and other product providers to licensees. Under the existing legislation, volume based payments are considered conflicted remuneration and are banned from 1 July 2013. Any arrangements entered into prior to 1 July 2013 will be grandfathered.
In the latest iteration of the grandfathering arrangements, the Treasury has said that new clients will not be permitted to be included in existing arrangements. This tightens a loophole which had been identified by the industry which would have allowed volume based payments to continue to increase (with the addition of FUM from new clients) after 1 July 2013.
To assist with the transition to this new approach, the Government has granted an extension to its provisions, allowing new clients to join an existing arrangement (that is one which existed prior to 1 July 2013) for a period of 12 months.
The Treasury also clarified that small changes made to an existing client’s investments will not trigger an end to grandfathering arrangements. For example:
‘Non-platform operators, for example fund managers, are only able to pay conflicted remuneration in relation to new investments if the client is increasing their interest in an existing product (for example, investing more money in a particular superannuation scheme or managed investment scheme).’
The release of the draft regulations follows the publication of the Australian Securities and Investments Commission’s final guidance on conflicted remuneration (RG 246). In its guide, ASIC said it was consulting with Treasury on the grandfathering regulations and would update RG 246 as required once these regulations were finalised.
