Answers to your FoFA questionsOctober 2012 - PDF document

1 1 Answers to your FoFA questionsOctober
1 Answers to your FoFA questionsOctober 2012 IMPORTANT:These FAQs are designed to provide nancial advisers and licensees with a better understanding of the FoFA reforms and clarify how the changes will aect your business and your clients. The information is based on released FoFA legislation (and associated 2 The following table outlines the impact of grandfathering arrangements on the dierent types of clients that an adviser may have: CategoryExisting Client / New ClientIssue date of nancial productAdviser RemunerationAnnual Fee Disclosure Statement Applies?Opt-in applies?GrandfatheredExisting ClientBefore 1 July 2013CommissionPartially grandfatheredExisting ClientNew product issued after 1 July 2013Fee-for-service (Adviser service fee)YesNot grandfatheredNew ClientAfter 1 July 2013Fee-for-service (Adviser service fee)YesYes, unless subject to code of conductCan insurance arrangements be grandfathered?No, grandfathering will not apply to a new insurance arrangement issued after 1 July 2013 even if it is provided through an existing personal superannuation product. However, commission can still be payable where the insurance is issued under a single (not group) policy as this is not considered to be conicted remuneration.What about commissions on risk insurance?Commission will only be allowed on individual policies (except corporate super) and group policies outside super. However, existing arrangements as at 1 July 2013 will be grandfathered, unless the arrangement changes and new insurance is taken out after 1 July 2013.Where a client with an individually underwritten pre 1 July 2013 insurance arrangement decides to acquire a new type of cover (eg add on income protection insurance to an existing death and TPD cover in personal super), this is likely to be a new arrangement and commission payments will not be grandfathered. We oer risk insurance through our super platforms under a master insurance policy; i.e. group insurance for corporate super and individual insurance for personal super are provided via a group (or master) insurance policy. Our IOOF Pursuit products and services also facilitate individual risk insurance policies with our insurance partner.The following table provides details about IOOF’s product oering: Type of risk insuranceProduct oeringIs risk commission payable?CommentaryRetail risk insurance provided under a policy issued before and after 1 July 2013.Available through:Pursuit Select, Core and Focus Personal SuperPursuit Select and Core Investments(non- super IDPS) YesThese are individual policies and risk commission can continue under FoFA.Individually underwritten insurance through IOOF personal superannuation platforms taken out on or before 30 June 2013. Insurance taken out pre 1 July 2013 through IOOF Personal Super Platforms :Pursuit Series (Select, Core and Focus);IPS Personal SuperSpectrum Personal SuperAustChoice Personal SuperYesAlthough written via a group insurancepolicy, these are existing arrangements on 1 July 2013 that are subject tograndfathering under FoFA.Individually underwritten insurance through IOOF personal superannuation platforms taken out from 1 July 2013Insurance taken out from 1 July 2013 through IOOF Personal Super Platforms.Pursuit Series (Select, Core and Focus);IPS Personal SuperSpectrum Personal SuperAustChoice Personal SuperAlthough individually underwritten, these arrangements are provided via a group (master) policy and commission is therefore banned. Advisers can use the new adviser service fee (insurance) for the ongoing advice provided to the client under the fee-for-service regime post 1 July 2Will IOOF platforms provide alternative remunerat

2 ion options to risk commission for advis
ion options to risk commission for advisers?Yes, we are introducing a new fee type into the IOOF Pursuit Select and IOOF Pursuit Focus platforms. The new fee type,“Member Advice Fee – Insurance” will be available for individually underwritten insurance through personal superannuation. 3 What impact does grandfathering have on advisers who are selling their business?ASIC has conrmed that the grandfathering provisions enable the contractual rights to commissions/benets that are in existence under an existing arrangement (as at 1 July 2013) to be sold/transferred to another adviser. Therefore, advisers can include an existing client base as part of sale of the nancial planning business. However, the adviser who acquires the book of business should understand that the existing arrangement is only grandfathered until a new nancial product is issued. That means if an adviser acquires a book of business after 1 July 2013 and then transitions the clients to a new platform, this would be a new arrangement and grandfathering would cease. How will current arrangements for dealer group rebates and volume payments be aected?Volume based payments to licensees from platforms, such as platform rebates, are conicted remuneration (unless can be proved otherwise). However, existing arrangements as at 1 July 2013 have been grandfathered under the FoFA reforms. The grandfathering arrangements will allow for market movements of the underlying funds and for additional amounts to be added to the platform. However, we would encourage licensees to seek legal advice if they are considering entering into new arrangements or making changes to existing agreements in light of the anti-avoidance provisions which are already in eect.Will post-1 July 2013 volume based arrangements be classied as conicted remuneration?Not if the volume based arrangement has been made on the understanding that it will be promptly passed through to the client. Where a licensee does not pass a volume based payment to a client, it may depend on other circumstances as to whether it would be treated as conicted remuneration. For example, some licensees keep volume based payments for the purpose of covering operating expenses. Soft dollar benetsWhat soft dollar benets will be allowed under FoFA?There will be an absolute ban on soft dollar benets, but the following types of benets will be excluded from the ban:Benets under $300 (includes monetary and non-monetary benets)Note that benets over $100 but less than $300 must still be recorded, including details of the benet provided. Also, where benets under $300 are given on a frequent or regular basis, such that the combined value of all benets received by an adviser is greater than $300, then it is likely to be considered conicted remuneration.Training and developmentEducation and training activities are not conicted remuneration if it has a genuine educational or training purpose that is relevant to providing nancial product advice to the client. Advisers must keep records of education and training benets they receive. Education and training activities for a particular course must take up at least the lesser of six hours a day or 75% of the time spent on the course. Also, the participant, their employer or the licensee must pay for travel and accommodation relating to the course as well as any events and functions held in conjunction with the course. There is no geographic restriction on the location of such events.Information technology software and supportAny information technology software or support that we provide is not co

3 nicted remuneration if it is relate
nicted remuneration if it is related to providing nancial product advice to retail clients about our nancial products. For example:software for an administration platformaccess to an information technology ‘help desk’ for problems that an adviser experiences in using administration platform softwareaccess to a website to place client orders.What types of benets will IOOF provide to advisers?FoFA will not change IOOF’s commitment to supporting advisers particularly through quality training, education and technical services. Our new adviser service oering, “IOOF AdviserConnect”, provides advisers and licensees with a range of services and support, all which will meet the requirements for FoFA going forward. We can provide advisers with the appropriate details that they will need in order to record any such benets they receive from us.How are payments or benets assessed to be conicted remuneration?As a general rule, a payment or benet is deemed to be conicted remuneration if it might inuence the advice given by the adviser. ASIC will consider dierent arrangements on face value and when forming a view on whether abenet is conicted remuneration, will look at a range of factors including:how the AFS licensee or representative gains access tothe benetwho is giving the benetwhen the benet is givenwhat reasonably appears to be the likely reason why the benet is being givenhow the value of the benet is determinedwhat the benet is and its features. 4 A benet does not need to relate to a specic nancial product to be conicted remuneration. For example, the benet could be one that means the adviser is more likely to only recommend the nancial products of a particular issuer.ReportingWhat are the annual fee disclosure and opt-in to advice fees requirements?Codes of conductASIC may grant relief from the opt-in requirements for ongoing advice fees if it is satised that an adviser is bound by an ASIC approved code of conduct. ASIC does not favour approving codes of conduct that are sponsored by a single AFS licensee or dealer group or by a small number of licensees of dealer groups because of concerns about how such codes could be independently administered and the level of condence consumers might have in them.ASIC’s approval of codes of conduct will depend on examining and matching them to the underlying FoFA policy objectives. According to ASIC, a code must demonstrate that the content addresses the key policy issues of client engagement, service delivery and value for money. ASIC has provided some high level approaches to code content, including ‘bundles’ of requirements such as commitments to advice services (including face-to-face meetings) and a ban on ongoingasset-based or volume-based fees for personal advice given to retail clients.An independent administration body will be responsible for ensuring compliance with the code and maintaining a public register of subscribing members who are exempt from the opt-in requirement.Annual fee disclosure statementAdvisers are required to provide a fee disclosure statement to any retail clients who pay ongoing fees. It must be provided before the end of 30 days after the relevant (one year) anniversary date. This will be either the anniversary of the day when the arrangement was entered into, or if a fee disclosure statement has previously been given, the anniversary of the last day for which disclosure was given. ASIC is expected to release a guidance note in relation to disclosure notices as some further clarity about them is required.Annual fe

4 e disclosure statement – not applic
e disclosure statement – not applicable to ongoing commissionsCommission payments paid by a product issuer (including a platform) are not deemed to be ongoing advice fees and are therefore not subject to annual disclosure. This means advisers do not have to provide a fee disclosure statement to a client or satisfy the opt-in requirements for commission payments. However, we understand the Government will seek to make legislative changes that require product providers to disclose commission payments in annual statements.What is IOOF doing to help advisers with opt-in and annual fee disclosure?We are planning to ensure that we provide the appropriate data feeds to Xplan and other planning software so advisers can meet their requirements from 1 July 2013 and 1 July 2015. We are also looking at the option of introducing online functionality for advisers to generate their own statements. However, we are awaiting further guidance from ASIC on opt-in and annual disclosure before we can fully implement these solutions for advisers.Best interest dutyHow does the best interest duty apply?The FoFA reforms require that advisers must act in the best interests of their clients. In applying the best interest duty, ASIC will consider whether it is “reasonable to believe that the advice would leave the client in a better position”. The phrase “in a better position” does not necessarily mean monetary improvement, but may include protection from risks, preparedness for the future, or access to product features. An adviser must prioritise the interests of the clients if they know, or reasonably ought to know, that there is a conict between the adviser, the licensee and any associates of Licensee (referred to as ‘related parties’). An adviser must not recommend products or services of a related party where additional benets cannot be demonstrated. Using information barriers to avoid becoming aware of a conicting interest of a related party would be in breach of the “conicts priority rule” if the adviser should have reasonably known about the conict.ASIC has stressed the importance of strategic advice and the need to formulate the strategy the advice is based on before recommending a nancial product. A “one size ts all” advice model is unlikely to meet the best interest duty because it does not take into account the client’s particular circumstances. ASIC has also indicated that the best interest duty is concerned with what occurred at the time the advice was given and not future outcomes with the benet of hindsight. Further guidance from ASIC on satisfying the best interest duty is expected later this year.Asset based fees on borrowed amountsHow can IOOF help in relation to asset based fees?This is a general ban on an adviser charging asset based advice fees where the client has used borrowed moneys to invest. ASIC has made clear that advisers cannot separate this ban from obligations under the best interest duty. Information discovered by making reasonable enquiries will be relevant in determining whether an adviser knows moneys used to invest are borrowed or not. Although the onus is on the adviser to ensure they do not charge asset based fees where borrowed We encourage you to ask us questions specic to you needs as a nancial adviser, so please speak to your IOOF business development manager if you require any further assistance.funds are used for investment, we will be modifying our products and platforms to help. IOOF’s platforms will allow advisers to charge dollar based advice fees and switch o percentage based advice fees where appropriate.Advise

5 r remuneration within IOOF productsWhat
r remuneration within IOOF productsWhat changes are being made toIOOF Pursuit Select and IOOF Pursuit FocusThese platforms already have fully unbundled fee structures and are therefore already FoFA compliant. We will also be introducing the following:The ability to charge an ongoing advice fee based on a xed dollar or a percentage amount, or a combination of the twoChanging the ‘once of’ advice fee to a ‘one o’ fee that can be applied multiple timesA new separate licensee advice fee, which allows an adviser to separately identify that part of the total agreed advice fee that the licensee will receive to cover their costsA new insurance advice fee to cover insurance advice for individually underwritten insurance provided through the platformsControls to prevent percentage based advice fees on geared accountsWhat changes are being made toIOOF Pursuit CoreAlthough the IOOF Pursuit Core platform has bundled administration and advice fees (ie pay commission), advisers can dial down the commission component of the administration fee to $0.IOOF Pursuit Core also oers separate advice service fees that can be charged on a once o dollar basis or ongoing percentage basis From 1 July 2013, commission can continue to be paid under existing arrangements for existing IOOF Pursuit Core accounts as grandfathering will applyWhat changes are being made to Spectrumand AustChoiceCurrently Spectrum and AustChoice have a bundled administration and advice fee component For current members of Spectrum Super or AustChoice who have accounts on 1 July 2013, no changes apply as commissions and bundled fee structures will be grandfathered. Advisers will have the option to dial down the commission component for existing accounts, should they wish to do so Insurance commission in personal super under existing arrangements will continue to apply past 1 July 2013. However, as insurance for Spectrum and AustChoice members is provided under a group policy, no commission will be paid on new arrangements from 1 July 2013.What changes are being made toIOOF Portfolio Service (IPS)IPS has bundled administration and advice fees (ie pay commission) All IPS products currently have the option to have a percentage based ongoing Adviser Service Fee agreed with the client, which will continue post 1 July 2013.For current members of IPS who have accounts on 1 July 2013, no changes apply as commissions and bundled fee structures will be grandfathered.Important note:The IPS Deferred Entry Fee Option will no longer be available for new accounts commencing post 1 July 2013. After this date, any transfers from a deferred entry fee product to another IOOF product will not be able to utilise the exit fee portability feature as a consequence of new FoFA and super rules. Therefore, if a deferred entry fee client transfers to a new IOOF product any outstanding exit fees will be deducted prior to transfer.What changes are being made to IOOF WealthBuilder?IOOF WealthBuilder is an investment insurance bond and already provides advisers with the option to have an adviser service fee attached to the productAdministration and advice fees are currently bundled, however advisers can request a full rebate of commission on existing and new policies.From 1 July 2013, all commission on new IOOF WealthBuilder policies will be dialled down to $0 and the cost fully rebated back to the investorCommission will continue to be paid on existing IOOF WealthBuilder policies as grandfathering will apply. | The future of nancial advice (‘FoFA’) reforms– frequently asked questions | The future of nancial advice (‘FoFA’) reforms– frequently asked question