In welcoming the clarity provided by the latest piece of FOFA legislation, Association of Financial Advisers chief executive Brad Fox said the association particularly welcomed the additional clarity on the grandfathering of employee remuneration arrangements for both salaried licensees and salaried advisers within an authorised representative business.
“In the absence of this regulation, the implications of changing employee remuneration arrangements were most concerning,” Mr Fox said. “The cost impact of these changes is significant, so adequate time for implementation is particularly important.”
Financial Services Council senior policy manager – advice, Cecilia Storniolo, said last Friday’s extension of the FOFA grandfathering provision to 1 July 2014 was “a pragmatic decision by the government provided to the industry on the last business day before FOFA’s mandatory start date of 1 July 2013.”
However, there remain a number of FOFA regulations that still need to be finalised, particularly those covering employee pay, Ms Storniolo said.
Financial Planning Association general manager of policy and government relations, Dante De Gori, told InvestorDaily it was “unfortunate” the industry had to wait until the eleventh hour to be given clarity over these issues, given the time and expense many had spent preparing for it.
However, Mr De Gori welcomed confirmation that buying and selling of a planning business was not viewed as conflicted remuneration, as well as that clients in existing grandfathered arrangements could switch investment options or make other changes without triggering a new arrangement.
An explanatory statement accompanying the latest regulations credited the 10 formal submissions to the March exposure draft outlining grandfathering arrangements for the change in approach.
In particular, the FSC and Australian Bankers' Association (ABA) argued strongly against the short term implementation of strict changes to employee remuneration.
“If new employees/advisers who come on board between 1 July 2013 and 30 June 2014 cannot participate in existing arrangements, but are able to write business that contributes to volume-based payments that can continue under the regulations until 1 July 2014, this creates significant complexity and also means that the regulations do not give employers or licensees enough time to develop new schemes for new employees/advisers,” the FSC argued.
This would mean employers would have to run two schemes during that period, creating inequity among new and existing employees and advisers during that 12-month period.
The ABA highlighted several legal and practical implications of applying the regulations around employee remuneration in the three months between the final consultation and the 1 July 2013 implementation date.
“It is essential that banks and banking groups are not exposed to potential action where banks are taking reasonable steps to ensure future or new salary and performance payments are compliant, yet seek to ensure no prejudice or disadvantage for their bank staff by changing (or being forced to change) existing arrangements or contracts,” the ABA submission said.
Astrid Raetze, a partner at law firm Baker & McKenzie who specialises in financial products and markets, told InvestorDaily that “a lot of companies weren't ready for FOFA from the perspective of their compensation regimes and were scrambling to amend their compensation regimes in time.”
As a result, ASIC had received a number of no-action letters, she added. Bigger corporations have had even greater problems than smaller companies because there are so many layers of approval to go through, which takes time, Ms Raetze said
