What expected material was not included in the second tranche?
When the first tranche of draft legislation was released in August 2011, the Assistant Treasurer foreshadowed that the second tranche would include:
- a definition of "intra-fund advice";
- a replacement of the accountants' AFSL exemption.
However, that material is not in the second tranche. It is now understood that Treasury will release a public consultation paper by the end of the year on restricting the term "financial planner" in the Corporations Act 2001.
A range of bans applying to a range of entities
The key proposed changes in the second tranche, which will amend the Corporations Act 2001, include the following:
Prohibition on "conflicted remuneration"
Licensees must not accept remuneration (ie so-called "conflicted remuneration") which has the potential to influence the financial product advice or recommendations the licensee provides to retail clients (with the exception of certain insurance or execution-only services, see below).
"Conflicted remuneration" means any monetary, or non-monetary, benefit given to a licensee or representative that might influence or distort their advice either by influencing:
- the choice of financial product being recommended; or
- the financial product advice more generally.
However, an authorised representative who accepts conflicted remuneration will be allowed to do so if they received the benefit after reasonably relying on information from their licensee that the benefit was not conflicted remuneration. For example, an authorised representative will not be liable in the following circumstances so long as its reliance on the licenseeā??s advice was "reasonable":
- a licensee dealer group collected product commissions on the authorised representative's behalf;
- the licensee advised the authorised representative that a particular forthcoming payment was in relation to "grandfathered" or wholesale commissions; and
- the payment later turned out to be illicit.
Carve-outs from conflicted remuneration
The following monetary benefits will not be treated as conflicted remuneration:
- a benefit given to the licensee or representative by a general insurer in relation to a general insurance product;
- a benefit from a life insurance company to a licensee or representative if the benefit 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;
- a commission on individual life risk (non-investment-linked) policies within superannuation for non-default ("choice") funds;
- a commission on life risk (non-investment-linked) policies sold outside superannuation; and
- third party "commission" payments from companies for stockbroking services if the payments relate to capital raising. The precise breadth of this carve-out is still being finalised, and consulted about. However, the basic proposal is that the receipt of "stamping fees" from companies for raising capital on those companies' behalf will not be considered "conflicted remuneration" if the broker is advising on and/or selling certain capital-raising products to the extent that they are (or will be) traded on a financial market.
Licensees must not accept non-monetary benefits over $300
Generally, licensees must not accept soft-dollar (non-monetary) benefits over $300 that have the potential to influence the financial product advice or recommendations provided to retail clients. However, they may do so for certain insurance, execution-only benefits, certain education or training purposes, and certain information technology benefits.
Employer may not pay conflicted remuneration
Employers of financial services licensees (or their representatives) must not pay the licensee or its representatives conflicted remuneration.
Product issuers may not provide benefits
Product issuers must not provide monetary or non-monetary benefits to licensees or their representatives, regardless of whether it might influence the financial product advice provided to retail clients (with the exception of certain insurance, execution-only benefits, certain education or training purposes, and certain information technology benefits).
Restrictions on volume fees and rebates
Platform operators may not pay volume rebates to licensees.
Licensees and platform operators must not accept volume-based fees for the purpose of securing "shelf-space" on an adviser's or platform's product list.
Restrictions on asset-based fees
Advisers must not charge asset-based fees to a retail client to the extent that the client's money is "borrowed" or "geared". Asset-based fees are a fee that depends on the amount of money the adviser holds or invests for the client.
Comments on the draft were due by 19 October 2011. Enquiries should be directed to Richard Sandlant on (02) 6263 2955.
Source: This article was first published in Thomson Reuters' Weekly Tax Bulletin. To subscribe to Weekly Tax Bulletin, or for more information, please
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