Speaking to InvestorDaily, Nicholas O’Donohue & Co senior associate Adrian Lynch said there is a lot of confusion within the industry about the grandfathering of conflicted remuneration.
Contrary to recent media coverage of the issue, pre-1 July 2013 benefits can be transferred to a new adviser as long as there are no changes to the underlying arrangements, he said.
In other words, there is a ‘safe harbour’ for transactions between advisers within the same financial planning licensee, said Mr Lynch.
“Where there is a plain vanilla transfer of a business within a licensee there’s no issue,” he said.
But it gets trickier when it comes to the transfer of client books between different licensees, said Mr Lynch.
In this case, the benefits can still be grandfathered – but all parties must agree to retain the existing arrangements, he said.
This would mean ‘licensee A’ accepting the same authorised representative agreement as previously existed at ‘licensee B’, said Mr Lynch.
“Transferring conflicted remuneration from an adviser who trades their licensee could conceivably be done, but it’s complicated and it needs clarification,” he said.
The comments echo similar statements by legal firm Minter Ellison in August that the grandfathering legislation could be “made to work” for transfers between dealer groups.
But according to Association of Financial Advisers chief operating officer Phil Anderson, the legal workarounds suggested by Mr Lynch and Minter Ellison would not be practical for licensees.
“It’s not commercially practical to expect that a licensee will be prepared to have an arrangement prepared by another licensee assigned to them,” said Mr Anderson.
Furthermore, it was never Treasury’s intention for benefits to be grandfathered when advisers change licensees, said Mr Anderson.
“[Treasury] expected that an adviser moving licensee would result in grandfathering being destroyed. That was the intention, but it wasn’t understood in the industry,” he said.
According to Mr Lynch, this ‘intention’ on the part of Treasury may explain dealer groups’ reluctance to take advantage of the legislation as it currently stands.
Dealer groups could fall foul of the ‘anti-avoidance’ provisions in FOFA if they change the way they draw up their contracts in order to maintain conflicted payments to advisers, he said.
“Licensees quite rightly don’t want to put themselves in a position where they are seen to be manipulating contracts in a way that defeats the purpose of the Act,” said Mr Lynch.
Mr Anderson said the current situation is “absolutely impractical”, adding that an announcement by the government about changes to the grandfathering rules is “imminent”.
