On 28 September 2011, the Government released for comment the 2nd and final tranche of its Future of Financial Advice (FoFA) legislation entitled Exposure Draft Corporations Amendment (Further Future of Financial Advice Measures) Bill 2011. The Bill is on the FoFA website.
The second tranche covers the provisions relating to conflicted remuneration including the wide-ranging bans on:
The reforms are scheduled to commence on 1 July 2012.Terry Hayes, Thomson Reuters
When the first tranche of draft legislation was released in August 2011, the Assistant Treasurer foreshadowed that the second tranche would include:
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.
The key proposed changes in the second tranche, which will amend the Corporations Act 2001, include the following:
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:
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":
The following monetary benefits will not be treated as conflicted remuneration:
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.
Employers of financial services licensees (or their representatives) must not pay the licensee or its representatives conflicted remuneration.
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).
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.
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
Melissa is a lawyer in the Maddocks Commercial team.
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