FOFA bonus ban deferred by one year
Most forms of conflicted remuneration banned by Future of Financial Advice (FOFA) changes will be allowed to continue for an extra year under generous grandfathering provisions contained in the final legislation.
Incentives such as bonuses, pay rises and reward-focused travel based on sales or volume incentives can continue until 1 July 2014 for all employees, even new employees joining a business after 1 July 2013.
And for employees who were under an enterprise agreement immediately prior to 1 July 2013, those incentives can further continue until six months after that agreement expires.
Association of Financial Advisers chief operating officer Phil Anderson told ifa the regulations are broadly consistent with what was in the draft but have extended in a few areas, such as the employee remuneration arrangements “which I think will be warmly welcomed not only by salaried licensees but by salaried advisers within an authorised rep business.”
Astrid Raetze, a partner at law firm Baker & McKenzie who specialises in financial products and markets, said companies large and small had been “scrambling” to prepare for changes to employee remuneration and most simply weren’t ready.
"My personal theory is no-one is ready for FOFA [in terms of employee remuneration]," she told ifa.
Smaller companies have been planning on “winging it” hoping that by the time they came to the attention of the regulator they’d have sorted out any issues, and bigger corporations have had particular problems because there are so many layers of approval to go through, which takes more time, Ms Raetze said.
In another key change, all new clients joining an existing dealer group/platform arrangement between 1 July 2013 and 1 July 2014 can be charged conflicted remuneration, although asset based fees on new geared investments are now banned.
Buyer of last resort arrangements for practice sales have been exempted from the conflicted remuneration ban, while existing investors increasing their exposure to a managed investment scheme or multi-manager investment can now do so without breaking the grandfathering provisions.
“There are other beneficial things in there – including certainty around changing arrangements in order to be compliant with FOFA,” Mr Anderson said.
“There’s a clear direction that where an arrangement has been changed to ensure FOFA compliance, grandfathering will be retained.”
Mr Anderson said this will be particularly beneficial in the area of corporate super, even though their situation is not specifically mentioned in the regulations.
“This corporate super element was the thing we were most concerned about and this gives them an extension of twelve months to resolve the issue, as most of the existing arrangements will be grandfathered,” he said.
“These regulations do not solve all of the problems but do provide a temporary solution.”
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