Licensees or practices that purchased a book of business since 1 July 2014 may now find it to be worth less than anticipated, a corporate law firm has warned.
In a communication issued yesterday, Hall & Wilcox partner Adrian Verdnik said the FOFA disallowance is a “major blow” to financial advice licensees that entered into transactions in the last few months on the basis that the government’s amendments would be passed.“The practical effect of those grandfathering regulations being disallowed is that benefits paid under a ‘redirected’ grandfathered arrangement are once again prohibited, irrespective of whether the transaction completed during the disallowed period,” Mr Verdnik explained. “A purchaser that acquired a book of business during the disallowed period that included grandfathered commissions may find the income they receive on the book to be much less than they expected.”Performance bonuses and other benefits provided to advisers during the disallowance period on the understanding that they would be exempt from FOFA’s conflicted remuneration ban may also be in the firing line, Mr Verdnik said.However, he also reiterated ASIC’s pledge to take a “facilitative approach” to FOFA compliance up until the transition period end date in July 2015, as previously published by ifa.In addition, the lawyer said it was very unlikely that advisers would be compelled to go back and provide renewal notices and fee disclosure statements to clients that missed out over previous months, arguing there should not be a “retrospective obligation” to meet these requirements.Speaking to ifa, Synchron director Don Trapnell said a number of practices within his network will be in this situation, whereby they have acquired client books or other assets that may now be under threat.“It is nothing short of a breach of natural justice,” Mr Trapnell said.Mr Trapnell is one of a number of licensee bosses meeting to discuss the issue at a forum held by the AFA today.
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