Treasury draft spells out grandfathering

The Government has signaled how its grandfathering provisions will apply together with an extension of the transition time allowed for key elements of its Future of Financial Advice (FOFA) arrangements, including conflicted remuneration, to 1 July, 2014.

The Australian Securities and Investments Commission (ASIC) late yesterday released its guidelines around conflicted remuneration while, separately, the Treasury issued an exposure draft of amendments to the Corporations Act dealing with conflicted remuneration and grandfathering.

That Treasury document appeared to confirm the grandfathering of platform payments to existing clients in a product or platform (under an existing arrangement).

The Treasury document specified an operative date of 1 July, 2014.

The explanatory memorandum around the exposure draft states that "non-platform operators, for example fund managers, are only able to pay conflicted remuneration in relation to new investments if the client is increasing their interest in an existing product (for example, investing more money in a particular superannuation scheme or managed investment scheme)".

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"If the client is investing in a completely different product, no conflicted remuneration can be paid," it said. "However, limited switching within a product will not cease grandfathering."

The Treasury document also clarifies the situation around conflicts with respect to buyer of last resort arrangements.

The Financial Planning Association (FPA) welcomed the Treasury draft as a "commonsense compromise between the intentions of FOFA and the practical implications for Australian investors and the financial planners".

"These proposed regulations will enable financial planners to provide financial advice and recommendations on switching investments and products within a platform with certainty to their clients," FPA CEO Mark Rantall said.

The conflicted remuneration guidelines were released by ASIC late on Monday and largely conformed to what the industry had been expecting but left the grandfathering arrangements up in the air, simply stating 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 date on which the conflicted remuneration provisions apply to that individual or entity".

That date was stated to be 1 July, this year, but the ASIC outline went on to say that, at the date of issue of the guide, "the Australian Government is consulting on regulations that will modify the scope of the transitional provisions. We will update this guide to take into account the effect of the regulations after they have been finalised".

The ASIC guidelines confirm that the new guidelines will cause a number of businesses to change their remuneration models.

The ASIC guidelines confirmed that in determining what is and is not conflicted remuneration, the regulator will be looking at the "substance of a benefit over its form".

While ASIC's approach on conflicted remuneration is largely based on the presumption of innocence, the guidelines state: "Under the conflicted remuneration provisions, generally the party claiming that the conflicted remuneration provisions have been breached bears the onus of proving that a benefit is conflicted remuneration".

It then goes on to say: "However, where the presumption that volume-based benefits are conflicted remuneration applies, the onus is on the person who is responding to a claim that they have breached the conflicted remuneration provisions to show why giving or accepting a benefit is not conflicted remuneration".