Benefits being received under existing contractual arrangements will be allowed to continue provided those contracts are not materially changed, according to new Future of Financial Advice (FOFA) regulatory guidance.
The Australian Securities and Investments Commission released the last major piece of the FOFA puzzle yesterday evening, although it said the grandfathering details are still subject to Government consultation. “We will update our guidance to take into account the effect of the regulations after they have been finalised,” ASIC stated.
In its RG246 guidance the regulator said for grandfathering purposes “arrangements” will be broadly defined and can include:
. agreements from a platform operator to pay an Australian financial services (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.
ASIC warned 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.
It also 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 ban covers licensees and their representatives receiving conflicted remuneration, product providers giving conflicted remuneration to licensees and their representatives, and also bans employers of an 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.
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.
ASIC 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.
Minor changes to an arrangement are unlikely to result in a new arrangement being created, ASIC stated.
“It is possible that a number of incremental changes made to an arrangement after the application day may, when viewed as a whole, result in a new arrangement being created. Where this occurs, a benefit may no longer be grandfathered if it is given under this new arrangement,” the guidance stated.
Grandfathered benefits may also be transferred to another licensee or representative without triggering conflicted remuneration provisions. However ASIC said this will be subject to the circumstances of the individual agreement, including the form of the arrangement and how the transfer is made, but did not provide further details.
