The federal government has delivered on its promise to crack down on conflicted remuneration models within Australia’s financial services sector with wide-sweeping bans and restrictions contained in the second tranche of its reforms.
The second package of the Future of Financial Advice (FOFA) reform, released by the government yesterday, focused almost entirely on remuneration changes, with the government banning conflicted remuneration, volume-based shelf-space fees and asset-based fees on geared funds.
The latest draft FOFA legislation restricts licensees from accepting remuneration that has the potential to influence financial product advice or recommendations to retail clients.
It also restricts licensees from accepting soft-dollar benefits of more than $300 that could bias advice or recommendations to clients.
Further limitations on soft-dollar benefits have been placed on industry, with professional development now being limited by a domestic requirement to be conducted in Australia or New Zealand.
The draft legislation has also delivered on its promise to ban volume rebates paid from platform operators to licensees.
In regards to licensees and platform providers, the government has said neither party should accept volume-based fees for the purpose of securing shelf space on an adviser or platform product list.
It also said advisers must not charge asset-based fees to a retail client to the extent that their funds are ‘borrowed’ or ‘geared’.
Employers of financial services licensees, or their representatives, must also not pay the licensee or its representatives conflicted remuneration.
In regards to a salaried planner or bank teller, the government has said both parties can advise retail clients on non-basic bank products as long as they are qualified to do so.
However, in the instance of providing financial product advice on non-basic bank products, advisers cannot be remunerated on the basis of volume or sales targets.
Meanwhile, the draft bill also includes a number of carve-out provisions on conflicted remuneration.
“The bill provides a carve-out from the ban on conflicted remuneration for arrangements where employees of an ADI (authorised deposit-taking institution) advise on and sell basic banking products,” the documentation said.
“In the case of a benefit from a life insurance company to a licensee or representative, the benefit will not be conflicted remuneration if it is given in relation to a life risk insurance product other than a group life policy for the benefit of members of a superannuation entity, or a life policy for a member of a default superannuation fund.”
