In brief
The Government's Future of Financial Advice Bill was passed by the Senate yesterday. While the Bill began its life as the so-called 'Streamlining' Bill, introduced by the Government on 19 March 2014, the Bill as passed yesterday bears very little resemblance to the Bill as originally introduced. It is truly a shadow of its former self. Senior Regulatory Counsel Michael Mathieson reports.
What is new in the Bill as passed
Opt-in and disclosure statements
The time period for giving opt-in notices and fee disclosure statements will be extended from 30 days after the relevant date to 60 days after the relevant date. (What is the 'relevant date' is another story – or mystery – altogether.)
What has survived from the Bill as originally introduced
Conflicted remuneration: client-given benefits – generally
A key exception to the definition of conflicted remuneration depends on the ability to assert that the benefit has been given 'by' a retail client.
The Bill will introduce a note to the effect that a reference to giving a benefit includes a reference to causing or authorising it to be given. It then cross-refers to section 52 of the Corporations Act 2001 (Cth), which deals with causing or authorising a thing to be done. We consider that the note does not add anything material to the pre-existing operation of section 52. The real question is whether section 52 applies in any particular situation.
Conflicted remuneration: client-given benefits – superannuation
A question that has been around since FoFA first commenced is whether a payment made by a superannuation trustee to a financial adviser or their licensee can fall within the exception for client-given benefits, where the cost of the payment is recovered from the fund and debited to the member's account.
To date, the legal position has been unsatisfactory, involving recourse to section 52 of the Corporations Act (see above) and/or to the original Explanatory Memorandum.
Now, the Bill will introduce a note in these terms:
Under the governing rules of some regulated superannuation funds, a member may seek advice on the basis that the trustee of the fund will pay the licensee or representative for the advice and then recover the amount paid from the assets of the fund attributed to that member. In that case, the member has caused or authorised the amount to be paid to the licensee or representative and so, because of section 52 of this Act, paragraph (1)(d) would apply to that amount. This does not affect the trustee's obligations under section 62 of the Superannuation Industry (Supervision) Act 1993 (which deals with the purposes for which a trustee may act in maintaining a regulated superannuation fund).
Our brief comments on this are:
- the question of whether a superannuation member has 'caused' or 'authorised' a payment will always be a question of fact – we would caution against relying on an overly literal interpretation of the note; and
- despite the caution we express, the note will at least make it plain on the face of the legislation that it is open to rely upon the exception for client-given benefits in a superannuation context.
Conflicted remuneration: intra-fund advice
The Bill will introduce a note that purports to explain what is 'intrafund advice'. That expression is not used in the Corporations Act or Regulations and therefore cannot be used as an aid to interpreting the legislation. It is not clear why the note has been inserted.
The expression is used in the EM. It says: 'Where remuneration structures relating to the provision of intra-fund advice are unlikely to materially influence the intra-fund advice provided to members, for example the levying of administration or management fees by trustees or fee for service type payments to third party advice providers, it is not intended that these arrangements would be captured by the ban on conflicted remuneration.'
This statement appears to be a speculation about the outcome of applying the influence test in the definition of conflicted remuneration, in the context of intra-fund advice. Applying the influence test is always a fact-specific exercise and we would caution against relying on this kind of generalised speculation in the EM.
Conflicted remuneration: basic banking products and general insurance products
The existing modification to the definition of conflicted remuneration, where the product is a basic banking product or a general insurance product, has been broadened. An interesting point here is that a corresponding modification had been effected by way of regulation but was disallowed by the Senate in November 2014. What a difference a year makes.
Financial adviser duties: basic banking products and general insurance products
The existing modifications to the duties to act in the best interests of the client and to give priority to the client's interests in the event of a conflict, where the product is a basic banking product or a general insurance product, have been broadened. Again, a corresponding broadening had been effected by way of regulation but was disallowed in November 2014.