The Australian Securities and Investments Commission has released its conflicted remuneration guidance (RG246) but details on grandfathering are still subject to Government consultation.
However, ASIC said it is more likely to scrutinise financial product advice to retail clients if the licensee or its representatives receives a grandfathered benefit as a result of that advice.
ASIC reiterated its view that conflicted remuneration is any benefit paid to a licensee or representative that is likely to influence the advice provided to a client.
The guidance covers licensees and their representatives receiving conflicted remuneration, product providers giving conflicted remuneration to licensees and their representatives, and bans employers of an Australian financial services (AFS) licensee or representative from giving their licensee or representative employees conflicted remuneration for work they carry out as an employee.
It covers monetary and non-monetary benefits and applies regardless of who gives or receives the benefit, ASIC stated.
ASIC said the Government is consulting on regulations to clarify how the grandfathering provisions apply if a party to an arrangement changes. “We will update our guidance to take into account the effect of the regulations after they have been finalised,” ASIC stated.
However, it did make clear that the conflicted remuneration provisions do not apply to a benefit given to an AFS licensee or representative if the benefit is given under an arrangement entered into before the application day.
For grandfathering purposes “arrangements” will be broadly defined and can include agreements from a platform operator to pay an AFS licensee a volume based rebate or commission; agreements from a product issuer to pay an AFS licensee ongoing and upfront commissions; agreements to transfer an advice business; and agreements that set out how employees who provide financial product advice to retail clients are to be paid.
Whether a benefit given to an employee under an employment arrangement is grandfathered depends on the terms of the arrangement and when it was entered into.
The guidance confirmed that an arrangement could be changed on or after the application day without a new or different arrangement being created, allowing the benefit associated with it to be grandfathered.
However, those benefits will not be grandfathered if the changes are so material that the arrangement is no longer the arrangement that was in place before the application day, depending on the individual circumstances of the arrangement, according to the regulator.
Financial Planning Association (FPA) chief executive Mark Rantall welcomed the draft amendments as a ‘common sense compromise’ between the intentions of FoFA and the practical implications of Australian investors and the financial planners. The proposed regulations will enable planners to provide advice and recommendations on switching investments and products within a platform with certainty to their clients, he stated.
Rantall also welcomed the delayed start date which allows for certain retrospective payments to be treated separately to new rules which ban conflicted remuneration to advisers from product providers and administrative platforms. “We believe the transition period to 1 July 2014 for all licensees/dealer groups is in order to allow an orderly and appropriate transition to the new rules. This sensible arrangement would allow all financial planning businesses to transition and re-structure in a manner which does not adversely impact their clients nor their business," Rantall said.
The release follow’s Friday’s statement on FOFA codes of conduct approval, in which it was explained that applications for opt-in exemptions and codes of conduct would now be considered by ASIC, but not from single-entity applicants such as licensees.
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