The Corporations Amendment (Revising Future of Financial Advice) Regulation 2014 (the Regulation) was registered yesterday and comes into effect today. The Regulation makes good on the commitment by the Government and opposition to give effect to the Future of Financial Advice (FOFA) changes which are not seen as controversial, in order to give some certainty to the financial services industry, particularly in relation to transactions involving financial advice businesses.
The Regulation makes the following changes:
- amends the grandfathering arrangements for the ban on conflicted remuneration (grandfathering provides when certain benefits are not subject to the ban) to:
- allow advisers to change the financial services licensee under which they are authorised whilst retaining their rights to receive grandfathered conflicted remuneration. In particular, the Regulation provides that grandfathering will continue to apply to a benefit, notwithstanding that the payment has been redirected under one or more later arrangements, so that advisers might move between licensees without losing the benefit of grandfathering on their client book;
- clarify that when a business is sold, the rights to grandfathered benefits are transferred to the purchaser, who can then receive the ongoing benefit. The purchaser may therefore acquire the same rights to the grandfathered benefits that the seller held prior to the sale taking place;
- extend the dates at which grandfathering ceases for benefits paid under employee arrangements. The amendments extend, by 12 months, the date at which grandfathering ceases for benefits paid under an employee agreement that had not expired before the grandfathering application date (1 July 2013), and also extends the termination date for grandfathering on agreements that expired before the application date from 1 July 2015; and
- specifies additional benefits that are permitted under the ban on conflicted remuneration and clarifies the operation of existing provisions, including:
- broadening the circumstances when benefits may be paid in relation to the stockbroker-related activities. This includes extending the ‘stamping fees’ exemption to capital raisings for investment entities such as REITs;
- broadening the existing education and training provisions to provide that benefits in relation to education and training that relate to conducting a financial services business are not conflicted remuneration; and
- ensures that the existing provisions which extend the renewal period for accountants’ certificates from six months to two years that currently apply in other parts of the Act also apply in respect of the FOFA provisions.
What is not covered
The contentious parts of the Government’s FOFA changes, which are not covered by the Regulation and will need to go through another round of consultation, include the ‘opt-in’ rule (whereby advisers must sign clients up to an ongoing agreement in order to charge them fees), the requirement to give all clients fee disclosure statements, the ‘catch-all’ provision in the best interests duty, and the scaled advice provisions.
What also got axed
Interestingly, the Government registered another regulation at the same time – the Corporations (Statements of Advice) Repeal Regulation 2014 – which (as the name suggests) repeals the Statement of Advice regulation that the Government registered following its deal with the Palmer United Party in July. The Explanatory Statement to the repealing regulation says,
‘The Government announced on 15 July 2014 that it would implement changes to the Statement of Advice requirements in exchange for the support of the Palmer United Party and the Australian Motoring Enthusiast Party in passing the Future of Financial Advice (FOFA) reforms; these changes were implemented through the Statements of Advice Regulation. The Government has decided to repeal the Statements of Advice Regulation as the agreement with the Palmer United Party and the Australian Motoring Enthusiast Party is no longer in force.’
When the Government did that deal with the Palmer United Party in July it announced that it had agreed to ‘make further improvements’ to financial advice laws. Evidently the Government no longer thinks those Statement of Advice changes are improvements to the law.