0. RI Advice – FOFA Training
May 2013

1. Agenda Introduction: RI FOFA Readiness & Advice Value Chain
Annual Fee Disclosure & Opt-in – 1.5 hrs
Recap of obligations and requirements
Generating an FDS
Client engagement re FDS
Preparation before 1 July & key timing
Activities x 5
Questions
Morning Tea – 15 mins
Best Interests duties – 40 mins
Recap of obligations
Changes to advice documents
Case Studies x 4
Conflicted Remuneration – 20 mins
Recap obligations
Activities x 3
Question & group discussion time – 15 mins
Introduction: RI FOFA Readiness & Advice Value Chain – 15 mins
Annual Fee Disclosure & Opt-in – 1.5 hrs
Recap of obligations and requirements – 15 mins
Client engagement re FDS – 10 mins
Generating an FDS – 30 mins
Preparation before 1 July & key timing – 5 mins
Activities x 5 – 20 mins
Questions – 10 mins
Morning Tea – 15 mins
Best Interest duties – 40 mins
Recap of obligations – 10 mins
Changes to advice documents & key timing (release of docs / transition process) – 10 mins
Case Studies x 4 – 20 mins
Conflict Remuneration – 20 mins
Recap obligations – 10 mins
Activities x 3 – 10 mins
Question & group discussion time – 15 mins

2. RI FOFA Readiness RI is well placed to meet FOFA obligations for:
Annual Disclosure
Best Interests
Conflicted Remuneration
Strong existing advice process focussed on quality advice
Supported by:
Templated advice tools
Customised technology eg Xplan wizards etc
FOFA will, however, have an impact on your business, especially in regards to additional effort required to meet Annual Fee Disclosure obligations

3. Ban on Conflicted Remuneration
Advice Value Chain
Best Interests Duty
Disclosure
Ban on Conflicted Remuneration

4. Annual Fee Disclosure & Opt-in
May 2013

5. Recap of obligations Recap of obligations to confirm: Requirements
Definition of Ongoing Fees
Who should get an FDS (and who doesn’t need to)
Methods for providing an FDS and timing
Confirmation of disclosure/anniversary date options
Process for re-setting disclosure date for new & existing clients
Buying a book / change in servicing adviser – points to be aware of

6. Fee Disclosure Statement (FDS)
From 1 July 2013, all retail clients with an ongoing fee arrangement for more than 12 months must be provided with an annual Fee Disclosure Statement
Includes both existing clients and new clients from 1 July  
Must include the following information for the previous 12 month period
Outline all services the client was entitled to under their ongoing service agreement or package
Outline the services the client actually received
All Ongoing Service Fees the client actually paid whether paid via the platform product or directly invoiced

7. Defining Ongoing Fees Legal source Commission disclosure required
Any fee paid by or at the consent of the client for the provision of services under a written or implied ongoing service arrangement.
Adviser service fees (ASF) paid via platform or directly by client are ongoing service fees.
Generally trail commissions are not required to be disclosed as ongoing fees, however, ASIC’s regulatory guide on FDSs says fee recipients should be careful to ensure that wording on the FDS does not mislead clients.
In situations where commissions have been represented as payment for an ongoing service arrangement and done so with the clear consent or at the direction of the client, RI recommends that these payments be disclosed.
Legal source
Commission disclosure required
Ongoing fee definition under FOFA No
Misleading Representation Regime
Possibly if represented as part of ongoing service arrangement
ASIC regulatory guide
Disclose if entered into with clear consent of or at direction of client

8. Who does not need to get an FDS?
Corporate super members who are not personally advised clients, i.e. the member has never specifically been engaged by the adviser to deliver personal advice for a fee;
Clients only paying insurance premiums;
Clients only paying trail commissions and no agreement was ever in place indicating ongoing services were being provided in return for the trail.

9. Providing the FDS
How long do you have to provide the FDS to the client?
Must be provided no later than the end of a 30 day period beginning on the client’s anniversary date, and
EG: if arrangement was entered into on 1/5/2013, FDS is due no later than 30/5/2014
Must relate to a period of 12 months that ends no more than 30 days before the statement is given to the client.
EG: in example above the FDS should include fee data from 1/5/2013 to 30/4/2014
It may be provided at the time of the client’s annual review or separately.
Can be provided face-to-face, via post or
A paper or electronic copy of the FDS must be retained on the client file.
If ed directly to the client’s address it can be sent without encryption.
Note - the client must have previously SPECIFICALLY authorised the receipt of documents by - holding the client's address on file or from a fact find is NOT sufficient.
If being sent to a non-client such as the Accountant, you will need to encrypt the FDS and in
the subject line you must include the word "Confidential". 

10. Disclosure Date
The Disclosure date for the FDS is the anniversary of the date that the ongoing fee arrangement was entered into.
RI has determined that the disclosure date will be:
the date of the last review between 1 July 2012 and 30 June 2013; or
The date the ongoing service agreement was entered into; or
the date an authority to proceed was signed; or
Where you have taken all efforts to confirm the date, and this can not be determined, you can re-set the date (conditions apply).

11. Disclosure Date – Example
A client has an ongoing service arrangement that commences on 1 August 2013
The next disclosure date will be 1 August The Adviser has up until 30 August 2014 to issue the FDS.
The subsequent disclosure date is 01 August 2015.
Event
Date
First disclosure day
1 August 2014
First FDS to be given on or before
30 August 2014
Date first FDS is actually given
15 August 2014
Period covered by first FDS
1 August 2013 – 31 July 2014
Second disclosure day
1 August 2015
30 August
2014

12. Resetting the Disclosure Date
If it is impossible or unreasonably onerous to determine the day an ongoing fee arrangement was entered into with the client, ASIC has allowed a “no action” clause where for existing clients an Adviser can:
nominate a date between 1 July 2013 and 31 January 2014 as the disclosure day
provide written notification to the client of the date you have nominated, explaining the significance of the disclosure day for the purposes of producing an FDS
provide an FDS to the client within 30 days of this chosen day
The notification and the FDS can be sent at the same time

13. Resetting the Disclosure Date
You may also reset the disclosure date (bring it forward) if:
The current disclosure date is not convenient for the client and they have requested a change;
You wish to spread the volume of FDS production across a number of months, (remember you can always bring the date forward, however you cannot push it back.)
It is more operationally efficient for your practice to disconnect the FDS dates from your client annual review dates and issue them in a bulk run once or twice per year.
Resetting a disclosure date effectively brings forward the disclosure day to a period earlier than the client’s original disclosure date.
When resetting, please note the following:
You must still issue an FDS for the period of the 12 months up to the new disclosure date.
Resetting FDS must also include disclaimers to clarify to the client that you are resetting the date. This can be done by selecting one of the appropriate paragraphs in the FDS template. The reset must be appropriately documented.
.Where resetting the FDS, remember to amend this date in your client management system (Xplan).

14. Resetting the disclosure date for a group of clients - Exercise
In the simplistic example above, you have 5 clients due for review in the month of July The identified client anniversary dates are the 8th, 14th, 23RD and 27th July.
Whilst we recommend fee discussion are carried out in a review meeting, the practice has made a Bus. Decision to send out the FDS and would like to streamline this process for the back-office.
Questions:
1) Looking at your clients in July, can you reset the 4 clients to September 2013?
No, you can only push these clients forward, not back.
2) If you were looking at creating the simplest process for your practice, what date would you re-set the FDS anniversary date of these four clients?
To maximise process and provide a single FDS date in July, bring it forward to 1 July. This gives you to 30 July to disclose the FDS
3) What would be the reporting period that this FDS would cover?
1 July 2012 – 30 June 2013

15. Buying Client Books
Servicing Adviser obliged to produce an FDS as at the disclosure date
FDS must cover the 12 months until disclosure day. This must include ongoing fees paid by the client to the previous adviser or licensee (where this situation arises).
Enhanced due diligence – Before you buy
When purchasing a book of clients your due diligence processes must consider:
if the old ongoing service arrangements under the previous adviser are continuing?; or
are you going to establish a new service arrangement; and
are you able to determine the client’s disclosure dates, services entitled to, services received and ongoing fees over the 12 months up to their disclosure date?
You should ensure the previous adviser can supply you with the information you need. If you are unable to receive this information you may be forced to establish new arrangements or terminate ongoing fees.
You may also be buying “additional workload for your resources” if disclosure dates for a large number of clients are close together.

16. Buying Client Books For pre - 1 July 2013 Clients
 If you are missing the information you need to send your client an FDS, you must have made a reasonable effort to obtain the information from the previous adviser and /or their licensee. You must keep evidence of having made reasonable efforts including keeping file notes and s of your attempts on the client file.
If after having made reasonable efforts, you are unable to obtain the information for the full 12 months to the disclosure date, you can issue an FDS with the partial information you were able to obtain.
For existing clients as at 1 July 2013, ASIC will not take action against you if the FDS has incomplete information from the previous adviser / licensee.
For post - 1 July 2013 Clients
 For new clients from 1 July 2013, if you are unable to obtain the information you need after the reasonable attempts, you must establish immediately a new ongoing fee arrangement with your client.

17. Generating an FDS
May 2013

18. Fee Disclosure Statement (FDS) generation
RI solution links in to existing systems and processes ie:
DMS Online
Xplan
RI best practice review process and ongoing service model
Disclosing amount paid to the adviser
may vary from amount client paid due to product rebates (RITC, ETR etc) so caveats/disclosure required to make clear for clients
Solution enables you will meet minimum requirements

19. FDS Generation – overview of automated solution1

20. Ensure all client details are in Xplan Review records in DMS Online
FDS Generation – overview of process
Ensure all client details are in Xplan
Review records in DMS Online
Enter client details into Xplan:
Anniversary date
Service category / segment
Consider doing a trial run FDS to determine what data gaps there are
Xplan
DMS Online
Xplan / CommPay
Xplan

21. FDS Generation – Automated Solution: Overview of process
Picks up groupings from DMS & matches to Xplan. Creates an exception report if can’t match
Enter new client details into Xplan
Xplan 
New

22. FDS Generation: Automated Solution – changes to existing process
Continue with existing process ie DMS Online groupings, Manage Review & Client Segmentation processes in Xplan
New processes:
Client matching (of exceptions) in CommPay to ensure correct fee data flows through to Xplan
New disclosure-related fields in Xplan:
“Disclosure Statement Required” – start using this field to identify clients in Xplan who need an FDS
“Next Disclosure Statement Date” field – start using that for all new clients with ongoing service arrangement (in addition to “Review date” field)
Note: RI is working to provide bulk upload of Review Dates into this field for existing clients
Reconciliation of services received by client with services entitled to in Xplan
FDS generation in XPlan

23. FDS Generation – Automated solution – client matching

24. FDS Generation – Automated solution – client matching

25. FDS Generation – Automated solution – client matching

26. FDS Generation – Automated solution – client matching in CommPay
Go to the CommPay via the Xplan Dashboard
Click on Administration Functions > CommPay

27. FDS Generation – Automated solution – client matching in CommPay
Mapping a CommPay client to an Xplan client using their name search
Note: mapping can also be done using the Xplan client entity number
Tick clients you want to link and select “Match”
View CommPay client name & Xplan Clients

28. FDS Generation: Setting up Services & Fees for Ongoing Arrangements
Go to: Xplan > Client Service to enter “Services Entitled To” & Fees in relation to Ongoing Service Agreements

29. FDS Generation: Automated Solution – important Xplan fields
Go to: Service – Reviews
Identify who needs an FDS in DMS Online and record this in Xplan here
Use this field for your Annual Disclosure Date for all clients.
Note: For existing clients we will retrofit this field for you from Review Date field
Opt-in date: enter date of agreement into this field for new clients post 1 July 2013

30. FDS Generation: Automated Solution – Search criteria
Go to: Xplan > Search
Use this to find all clients with Annual Disclosure date in certain month
For example: search for all clients with “Next Disclosure date” in month of Oct
Results: Shows all clients with FDS due in Oct

31. FDS Generation: Automated Solution – FDS Management Report
Use this to see a summary report on clients requiring an FDS
You can run an FDS Management Report
Results: Shows summary of status re Services for FDS clients

32. FDS Generation: FDS Wizard – Disclosing Services
Go to: Client Menu / Service / FDS Wizard
Select letter options
Confirm if resetting disclosure date
Services Entitled to:
Automatically ticked in line with ongoing service arrangements
Tool tips provided to explain steps
Services Provided:
Tick to confirm what was provided to client
Free-text field if you need to explain / clarity anything re services & what was provided

33. FDS Generation: FDS Wizard – Disclosing Fees
Go to: Client Menu / Service / FDS Wizard
Select CommPay as source of fee data*
This screen also shows Fees as per Ongoing Service Agreement so you can quickly reconcile
Choose what fees you are disclosing here ie:
ASF only
ASF & Commissions separately
Total fees (only use if not able to unbundle from product manufacturer
Breakdown of fee data provided here
* Note: option available to input fee data manually if required

34. FDS Generation: FDS Wizard – Generate FDS
Click generate FDS
Download FDS

35. What does the FDS look like?
Cover letter
Statement (linked to OGS agreement wording)
Services “entitled to”
Services “provided”
Fees charged
Important disclaimer info:
“Services provided” may include services that were made available to you or you had access to, which you did not utilise – allows you to tick where access was given but client didn’t take up service eg didn’t attend seminar
In addition to fees disclosed other ongoing remuneration such as commissions may also be received – important sentence to cover off any perception of misleading & deceptive conduct when only disclosing ASFs

36. FDS Generation – Manual solution
In certain situations you may choose to generate an FDS manually ie not using CommPay fee data, eg if:
Unable to complete client matching of exceptions prior to disclosure date, which means fee data via CommPay may not be correct
Unable to reconcile fee data from CommPay with amount you believe client should have paid and you prefer to enter the amount in manually
You have a fixed dollar-based ASF you charge your clients, which means you know easily how much they have paid (eg $100 per month for 12 months) X
Xplan
Run DMS Reports and collate total fees for client relating to ongoing service arrangements
Manually enter fee amount into Xplan

37. FDS Generation – Manual solution
Go to: Client Menu / Service / FDS Wizard
Select Manual as source of fee data*
Manually enter fee

38. Client engagement re FDS
Ultimately your clients are paying you because they trust you
U.S Based consultant, Charles Green* defines trust as:
Credibility + Reliability + Intimacy
  Self-Orientation
Credibility (i.e. competence, track record & ability to instil confidence)
Reliability (i.e. do you deliver on what you say you will deliver – service and advice outcomes)
Intimacy (i.e. how well do you engage with your clients on a personal level?)
Self-Orientation (i.e. to what extent are you putting their interests before your?)
*Article: Trust in Business: The Core Concepts April

39. Client engagement re FDS
In order to ensure the FDS does not potentially create issues with your clients, you need to understand the difference between your value and service proposition.
CVP – This really needs to focus on the outcomes – The benefits to the client in having a relationship with you.
CSP  - This is the mechanism which provides structure to help you deliver on your value proposition.
When discussing your FDS, focus on value, not on the individual service widgets which you may or may not have delivered.... how much value does a newsletter really provide?
RI have developed a Sales Script and re-worded a new master service agreement to help.
Speak to your RPM if you would like to revisit your value or service proposition

40. Annual disclosure – best practice timeframes
Conduct Annual Review meeting & provide client with Annual statement of services & fees for 12 mth period ending 30 June 2014
Annual disclosure deadline expires – penalties apply past this date
New client signs up for ongoing service program
Send out review offer letter/ / phone-call
4 weeks prior however may vary dependant on your review process
12 months + 30 days
eg 30 July 2014
First FD day – eg.1 July 2014
Anniversary date (date ongoing agreement commenced i.e. review or ATP signed)
e.g. 1 July 2013
Obligation met
If face-to-face meeting not possible, send out Annual statement (by post/ )
When looking & value vs. fees, we recommend you make the process part of your review process (i.e. face to face)

41. Preparation for 1 July
Commence client matching (of exceptions) in CommPay – access scheduled for late May
FDS template will be available from mid June 2013
Training material and online tutorials in May and June.
Refer to RI Report for FOFA updates
Contact your RPM or practice Development Coach to assist you through the process.

42. Annual Disclosure – New support tools
New letter templates are being developed:
Cessation of client relationship
Confirmation of services
Re-engagement to confirm changes to service offer and/or price
Letter to request data from adviser or licensee of a practice being purchased
Update to FDS statement for partial disclosure
To be released via RI Report in June

43. Key milestones and timeframes
Monitoring & supervision starts
FOFA starts
CommPay* access enabled.
Start client matching
FDS wizard released in Xplan*
National Conference
PD Days
Reinforce solutions & processes
1 Mar
3-5 April
1 May
Late May
1 June
17 June
1 July 2013
July
FDS Testing
Identify who needs FDS
Group clients in DMS
Clear segmentation & service offers in Xplan
C&D client review & clean up
Anniversary date identified for all OGS clients
FOFA
Training via RBTs
Start booking reviews & preparing for July clients
* Release schedule TBC as dependant on Technology suppliers.

44. Activities & Question Time
May 2013

45. The date of the new ongoing fee arrangement I have implemented
Activity 1 – FDS
The Adviser has inherited a client that has an ongoing service arrangement that commenced in 2010.
The Adviser Service Fee (ASF) is $2,200 per year and is deducted monthly from an
Investment Account.
What would be an the most relevant disclosure date?
The date of the new ongoing fee arrangement I have implemented
Answer:
As a “new” ongoing fee arrangement has been structured, the second option would be the most relevant disclosure date.

46. Activity 2 – FDS
An Adviser has purchased a new book of clients from another adviser and has had the servicing rights to their Macquarie Wrap super account changed to you.
On the disclosure date your records show the client paid you an Adviser Service Fee of $2,000 for the past 5 months but the previous adviser and their licensee says they are unable to release data for the prior 7 months to you.
What should you do?
Answer:
Issue the FDS with fees paid for the 5 month period with clear disclosures indicating this. All future FDS’s will need to cover the 12 month period.

47. Activity 3 – FDS
The client agreed to a “Platinum” Service package in 2010.
As part of this, they are entitled to two reviews annually, newsletters, invitations to seminars and any phone queries they initiate. They attended one review but declined the second as they didn’t feel the need to review or make any changes.
What must be included in the FDS?
Answer:
Outline the services entitled to receive, the services they actually did receive and the ongoing fees paid. In this example, if the service agreement is for the adviser to “offer” a review, and the client doesn’t take this up, the adviser has still met its obligation.
The FDS wizard/template does allow you to articulate this.
Note – the wording of your ongoing service agreement is important.

48. Activity 4 – FDS
An Adviser is planning the schedule of FDS due dates for the year ahead. The Adviser identifies that 30 of the clients are due for an FDS by 31 July 2013.
22 of these clients pay less than $100 in ongoing fees to the business
5 clients generate $2000 in revenue per annum
3 clients are top tier clients
The Adviser will not have the resources or time to complete all 30 statements by the due date.
What could be a solution?
Answer:
Turn off the fees for the 22 clients and ensure you deliver on your top tier clients.
Look to re-engage with the 22 clients to engage into a profitable new service arrangement.

49. Activity 5 - FDS
You have 10 clients who have been on an ongoing service package for the past 6 years.
The ongoing service entitles them to 1 annual review per annum. You agreed with one of the clients that the cost of the ongoing service package is $1,000 per year and you arrange with the client to pay $400 via an Adviser Service Fee with the remaining $600 being paid via trail commission from the product.
At disclosure date, what should be included in the FDS?
Answer:
As you have made representations and agreed with the client that the ongoing service fee is to be paid from the ASF and commission, both the trail and commission should be included.

50. Best Interests Duty
May 2013

51. What’s changed
From 1 July 2013 – reasonable basis – replaced by Best Interests Duty
The Law:
places the liability on you personally as the advice giver (previously on the Licensee)
details specific steps (Safe Harbour) that must be undertaken throughout the advice process
states - The client’s needs and interests must be placed ahead of your own or RI’s or associated entities (there was no statutory duty in the past)
Penalties for breaching obligations are civil (previously criminal) (Note: ASIC has other powers that it may apply resulting in criminal action being taken)
Penalties $200,000 adviser
$1 million for licensee (potential for criminal action under other ASIC powers)

52. Best Interests Duty – considerations
Any advice given to a client must recommend a strategy that is appropriate for the client and satisfy the best interests duty and related obligations.
Is the client in a better position than they were before they sought it?
Being better off is tested at the time the advice was given
Evaluation will be assessed on whether a reasonable adviser presented with the information that you had at the time of the advice, would consider that the client would be better off if they followed your advice

53. Safe Harbour
Step 1
Identify your client’s objectives
Step 2
Identify the scope with your client
Step 3
Make reasonable efforts to obtain complete and accurate information
Step 4
Assess whether you have the expertise required to provide the advice. If you don’t, refer or decline to provide the advice
Step 5
Where you make a financial product recommendation you must demonstrate that you have completed a reasonable investigation to ensure that the recommended product meets your client’s financial goals & objectives
Step 6
Base all judgement on the client’s relevant circumstances
Step 7
Take any other reasonable necessary steps to ensure your advice and product recommendations are in the ‘best interests’ of your client
Most RI Advisers are already doing this and generally will have little change to make.
The focus should be on ensuring you have a robust, defendable and well documented advice process.

54. Scoping your advice
Assess if you have the expertise to provide advice given the agreed scope and complexity of the needs and circumstances of the client.
Establish the scope of advice most appropriate to the client’s needs, objectives and circumstances;
Consider your authorisation and experience including your strengths / development areas in advice;
With the client’s best interests at heart, determine if you can proceed to provide advice on the agreed scope or have to decline to provide advice or refer the client
You must not limit the scope of advice inappropriately to your areas of qualification or experience

55. Referring to another adviser
You must decline to provide advice if you do not have the expertise to give advice in the areas the client requires advice.
Best practice would be to source a qualified adviser from within the RI network or refer the client to a referral partner
 Identify potential gaps in your advice offerings where you may need to establish a referral arrangement with another professional (lawyers, accountants, other advisers);

56.  Advice records
Under the Best Interests Duty, having documentation to prove a defendable and a robust advice process was used becomes as critical as ever.
Keeping comprehensive records on client files including research and documenting why the advice was appropriate for your client, remains a critical compliance requirement.
Some examples of appropriate documentation to support your advice process are:
Detailed file notes
Any correspondence between you and your client or between you and the product providers when conducting your research or reasonable investigation
Working papers
Fact finds
Advice documents
Recordings
Any other supporting documentation that you feel is relevant.

57. Changes to Advice Documents
FSG & Adviser Profile
Incorporates the Best interests obligations and the process to refer clients where an Adviser may have limitations in the advice they provide.
Includes updated info in regards to conflicted remuneration
Fact Find - Key changes:
Purpose for seeking advice section – new free text section for capturing why client seeking advice
Wording in needs & objectives table has been changed to better reflect client needs
Goals, needs & objectives section – now includes free text section to capture client’s actual words
Goals, needs & objectives section - Advice limitations – new section for recording any limitations
LOE – no longer includes scope of advice as it’s not a requirement to include in the LOE
Authority to provide information – new page added to enable collection of client authority
Letter of Engagement  
Standalone version of LOE with exactly same wording as current LOE.
Provided as standalone version via Xplan merge report as scope of advice has been removed from version of LOE contained in Fact Find.

58. Changes to Advice Documents
Quick Plans - Key changes:
Scope of advice section – updated wording to describe what’s in scope
Inaccurate / incomplete information warning added
‘What you want to achieve’ section – text updated to create better linkage between strategy & objectives sections
RoA &  RoA File Note   
Intro letter updated with better wording re scope of advice & incomplete / inaccurate info
SoA  & Strategic Review SOA – Key changes:
Scope of this advice section – text updated to match new scope items in Fact Find (which better reflect client needs & issues) 
Limitations text – added for when client hasn’t provided required info
Objectives text amended to match new scope items and priority column added
Overall text updated to ensure linkage between why strategy is right for client and meets their objectives
New sentences added linking product to strategy
Objectives text amended to match new scope items
Ongoing Service Agreement 
Wording improved to provide greater clarity around services (for future use in FDS) and to ensure focus is on Core Services provided by Adviser, rather than ancillary services

59. Best Interests Checklist – new tool
Complete this checklist to help you meet your best interests duty and related obligations. Tick the applicable boxes and retain all applicable supporting information in the client file to show how you have met your obligations.
Client name(s): ………………………………
1. Goals and objectives *
I identified and recorded the client’s objectives, financial situation and needs stated by the client
2. Advice area (the subject matter of the advice) and the scope of advice*
I identified and recorded the advice area sought by the client, either stated or implied *
If the advice area has been limited by the client or by me, I recorded by whom and why #
I identified and recorded the scope of advice that is consistent with the advice area sought by the client and the client’s circumstances *
3. Client information *
I made reasonable inquiries to obtain complete and accurate information about the client’s circumstances and recorded the information *
4. Expertise and referral *
I have the expertise and accreditation to advise the client on the advice area and products, and I am authorised by my licensee to do so #
I referred the client to another adviser who had the expertise to provide the advice #
I declined to provide advice as I did not have the expertise to provide it #

60. Best Interests Checklist – cont...
5. Investigating and recommending a financial product #
* This step is mandatory when recommending acquiring a new financial product, or disposing of, increasing or switching a holding in an existing financial product. Tick the relevant boxes only
I formulated and recorded the strategy on which the advice was based before I investigated financial products #
I investigated approved financial products that might meet the client’s needs and achieve their objectives, and recorded the findings #
Where approved financial products did not meet the client’s needs, I investigated non-approved financial products that might meet the client’s needs and achieve their objectives, and recorded the findings #
I investigated a financial product that the client requested that I consider and recorded the findings #
I assessed the product information gathered and recorded the details #
I provided the client with general or strategic advice that was not product specific #
I obtained a waiver/approval to use a non-approved product and/or platform #
6. Judgements *
All judgements I made were based on the client’s relevant circumstances. I considered them when scoping the advice, determining the extent of my inquiries into the client’s circumstances, formulating the strategy and recommending the type of and the specific financial product *
I believe the client is likely to be in a better position if the client follows the advice *
7. Other reasonable steps *
I took other reasonable steps that, at the time, I regarded as being in the best interests of the client and recorded the details *
8. Appropriate advice *
The advice is appropriate to the client *
9. Prioritising the client’s interests ahead of my own *
I prioritised the client’s interests ahead of my own interests, my related parties and those of my licensee *

61. Best Interests Duty 1 July 2013
Destroy all old stock
Fact Find
FSG & Adviser Profile
Use all new advice documents (in Xplan and on Adviser Services)
Fact Finds
Letter of Engagement
Quick Plans
Record of Advice templates
Statement of Advice templates
Strategic Review SOA
Best Interests file checklist – new tool

62. Key milestones and timeframes
CommPay* access enabled.
Start client mapping
Monitoring & supervision starts
FOFA starts
FDS wizard released in Xplan*
New
Advice docs released
National Conference
PD Days
Reinforce solutions & processes
1 Mar
3-5 April
1 May
Late May
Mid June
30 June
1 July
July
FDS Testing
Identify who needs FDS
Group clients in DMS
Clear segmentation & service offers in Xplan
C&D client review & clean up
Anniversary date identified for all OGS clients
FOFA
Training via RBTs
Start booking reviews & preparing for July clients
* Release schedule TBC as dependant on Technology suppliers.

63. Case Study 1 – Replacing a Product
Situation: A client has requested an increase of $100,000 to their current AMP life cover and TPD sums insured of $300,000 as their mortgage has increased by this amount.
Recommendation:
You recommend the client obtain a new policy for $400,000 and cancel their existing policy, rather than apply for additional cover within the existing policy.
The terms of the insurance policies and the annual premiums are the same.
Result for you: This entitles you to receive a commission of 120% of the annual premium of the entire $400,000 rather than just the increased amount of $100,000.
The client accepts the advice and now requires medical checks which would not have been required if the cover had been increased on the existing policy under AMP . No loadings are applied to the client. If the client had held the existing policy, and with the increase they would have been entitled to a 5% increase in the level of cover at no extra cost due to them reaching the four year anniversary on the policy.
Has the client been placed in a better position?
Who has benefited from this advice?
The client is in a better position in the sense that they now have more appropriate levels of cover, however assuming that the policy definitions & terms are the same, they could be worst off compared to increasing cover under existing policy. The adviser has put their interest first.

64. Case Study 2 – Qualifications & Advice
Case Study 2 – Qualifications & Advice
Situation - You are a new Adviser that has a life risk only authority. You recently saw a new client who is a self-employed tradesman who requires income protection cover before he’ll be allowed on a building site.
Discovery - You conduct reasonable enquiries in relation to the agreed scope of advice and during the Fact Find process discover the client is in partnership operating a hugely successful plumbing business with 20 employees. The client spends his time quoting jobs while his partner runs the logistics and admin. The client also tells you that he does not have any succession plans in place.
Recommendation - You consider the clients may have a need for a Buy/Sell Agreement and Business Insurance however as a newly qualified adviser, you don’t feel you have enough experience to provide advice in the additional areas identified.
What are your obligations under Best Interests?
As the client has highlighted areas outside the area of competency, you must either decline to provide the advice or refer the client to an appropriately qualified specialist (e.g. another RI adviser). You can not ignore the clients need or mutually agree to scope it out.

65. Case Study 3 – Scope of Advice
Case Study 3 – Scope of Advice
Situation - A couple engages your services to provide them with advice to address three objectives:
to pay off their home loan;
to obtain education funding strategies for the expected educational expenses of two children; and
to increase their superannuation balance.
Discovery - In the Fact Finding process you discover that they have a third child who has a disability and will require ongoing care for their entire life. You expand your questions to discover what plans have been made to care for the child in the short and long term.
Recommendation - The couple provides further information of the investment and insurances that have already been instigated to care for their third child. The client states that this investment does not need to be reviewed. However you discuss the need to review the insurances. The client agrees with this review.
How should you address the additional investments and insurances under Best Interests?
The adviser has considered that the information provided was not sufficient to identify the clients relevant circumstances. The adviser uses a series of questions to determine if the client has made provisions for the child & to determine if the needs & objectives as well as the scope of advice should be amended. This demonstrates that the adviser is considering the scope of advice in relation to the clients best interests. Also it is considered that advisers who implement these types of processes are more likely to be able to demonstrate that they have met the BI duty & related obligations when they provide advice.

66. Case Study 4 – Scaled Advice
Case Study 4 – Scaled Advice
Situation - A 45 year old client has approached you wanting to consolidate super and review their risk position. It appears that this will be a simple scaled advice situation on the surface and you agree and begin the fact find process.
Discovery - During the fact find process, you find out the client is divorced from a partner who cannot work and supports a disabled child.
It is now clear to you this is not as simple as it first seemed. You are now aware that the client is the sole breadwinner and that you must ask more questions about what extra financial support the disabled child needs as a result of their medical condition. This includes such things as medical fees, adjustments to home or car and extra tools to assist the child through life at school or special education etc.
How should you address the additional investments and insurances under Best Interests?
The scenario requires you to make further enquiries because under the safe harbour requirements you must:
Identify the needs of the client that would be considered as relevant to the advice sought; and
Where it is reasonably apparent that information in relation to the client is incomplete, you must make reasonable enquiries to obtain all the information.
As the provider of the advice with the expertise, it is your responsibility to know how far your enquiries should go, thereby setting the scale of the advice. You can adjust the level of your inquiries about the clients relevant circumstances to reflect the nature of the advice being provided as demonstrated in the example above.

67. Conflicted Remuneration
May 2013

68. Conflicted remuneration – recap of obligations
The ban on conflicted remuneration is comprehensive and affects the following types of payments:
Fund manager to Platform payments (shelf space)
Product manufacturer to licensee payments
What advisers can accept from their licensee and from product manufacturers
Monetary
Soft-dollar benefits
Payments from employers to advice giving employees
Charging clients asset based fees on borrowed amounts

69. What is conflicted remuneration?
Conflicted remunerations means any benefit, whether monetary or non-monetary, given to financial services licensee, or a representative of a financial services licensee, who provides financial product advice to persons as retail clients that, because of the nature of the benefit or the circumstances in which it is given could reasonably be expected to influence the financial product advice recommended by the licensee or representative to retail clients

70. Ban on conflicted remuneration structures – Superannuation, investments and platforms
A prospective ban, from 1 July 2013, on:
All benefits from any financial services business, relating to the distribution and provision of advice for retail financial products
Includes a ban on initial and ongoing commission
Benefits include monetary and non monetary benefits
Grandfathering provisions for existing clients
Existing clients in existing products are generally grandfathered
Ban applies to all financial products (including managed investments, superannuation and margin loans) but excludes certain risk insurance products

71. Conflicted remuneration
Note: Monetary benefits from Life companies are exempt

72. Ban on conflicted remuneration
Excludes:
ASFs directed by a client
Payments in relation to general insurance
Payments in relation to life insurance, other than:
Group life insurance within superannuation
Any life insurance for a member of a default super fund
Payments where no advice is provided
Payments in respect of wholesale clients
Payments in respect of certain stockbroking activities
Prescribed benefits or given in prescribed circumstances

73. Is the benefit conflicted?
In order to assess whether a benefit is conflicted you need to answer the following questions:
Is the benefit designed / intended / reasonably capable of influencing the advice given?
Is the benefit specifically exempt from the definition of conflicted?
If the benefit is conflicted, has the benefit been grandfathered?
If the benefit is allowed to be accepted, how do I disclose it?
In assessing whether it is conflicted it is important to consider:
What the benefit is in nature (is it monetary or non-monetary? If non-monetary, is it
educational, IT or entertainment?). Is it designed to align your interests to your client’s?
What is the benefit designed to reward? (Product recommendations, volume linked sales,
activity/sales, non-product linked measures?)
Is it volume based? (linked to volume of product sold? – if so it is presumed conflicted)
Are the benefits passed on to advisers who provide advice to retail clients?

74. Grandfathering of existing arrangements
FOFA grandfathers existing arrangements for existing members in an existing fund or investment (and some new member)
Grandfathering of any arrangement that was entered into before 1 July 2013; and
where a person was a member of the fund, and investor or had given a direction prior to 1 July 2014.
Establish new arrangements until 30 June 2013*
No new arrangements will be grandfathered
Continue to on-board new clients into pre 1 July 2013 arrangements
No new clients grandfathered
Continue to receive commissions and rebates on grandfathered client balances and additional monies
Continue to receive commissions and rebates on switches & top-ups within existing pre 1 July 2013 arrangements
An arrangement has potentially broad meaning
Applies to platform & non-platform operators
* Subject to anti avoidance provisions.
30 June 2013
30 June 2014

75. Grandfathering of existing arrangements
FoFA grandfathers existing arrangements for existing members in an existing fund or investment (and some new members)
Grandfathering of any arrangement that was entered into before 1 July 2013
Where a person was a member of the fund, and investor or had given a direction prior to 1 July 2014
An “arrangement” has a potentially broad meaning – it may encompass contracts, agreements, understandings, schemes or other arrangements
A “benefit” includes:
Commissions
Shelf-space payments
Platform margin
Soft-dollar benefits
These measures now apply in relation to both platform and non-platform operators

76. Grandfathering of existing arrangements
Existing client in existing fund/investment
Grandfathered
New contributions to existing fund/investment
Switch within existing fund/investment
Grandfathering for super, pension and IDPS
“Limited” grandfathering for non-super mastertrusts
Transfer to a new fund/investment/platform
Not grandfathered

77. Monetary Benefits Benefit From To Adviser Service Fees
Asset based fees (other than where investment is sourced from borrowing)
Fixed fees
Flat SOA / ROA fees
hourly rates as agreed by you and your client.
Client
Adviser
Asset based fees (where investment is sourced from borrowing)
Ongoing commissions (super and investments)
Product via Licensee
Life insurance commission held both inside & outside of superannuation.
Volume rebates
Platform via Licensee
Shelf space fees
Fund manager
Licensee and / or Adviser
Purchase of practice
Licensee
Conflicted
Comments No
Fees paid for by client to adviser align the adviser to the client and are not conflicted. You can accept these and disclose them in the SOA / ROA.
Yes
Specifically banned. You cannot charge a client this after 1 July 2013.
Yes but Grandfathered
You can continue to receive these and disclose them in the SOA / ROA. (Please note however Stronger Super legislation will impact on commissions from default funds)
Exempt
Life insurance commission held both inside & outside of superannuation will continue to be paid (except for group cover inside super or retail in default funds and Mysuper funds)
You can continue to receive these and disclose them in the SOA / ROA. (Note Stronger Super legislation will impact commissions from a default fund).
Yes
Grandfathering may apply to existing pre 1 July 2013 arrangements.
Grandfathering does not apply to new arrangements post 1 July 2013.
Yes
Banned (subject to grandfathering of certain arrangements pre 1 July 2013) No
Allowed as long as there is no uplift in valuation for specific products / platform

78. Monetary Benefits cont...
From To
You recommend OneCare Income Protection to a client after 1 July and receive 115% upfront commission.
Product Manufacturer via Licensee
Adviser
You have a client with an AMP Super Account – not in a default investment choice - that has been active with you as their Adviser since You receive a monthly commission payment of 0.6%pa.
You purchase a client book with 100 clients who were with an adviser for many years as at 1 July The book was bought on 10 July The previous Adviser was receiving ongoing commission of 0.8% on super and investments.
You have a large Corporate Super account as a client. You currently receive a trail commission which has been in place for the past 5 years.
You agree with a client to charge a one-off ASF of $1,100 for the cost of your advice commencing July 2013.
Client
Conflicted
Comments
Exempted
Life insurance commissions are specifically exempt and you can continue to receive them. Disclose these in the SOA.
Grandfathered
Grandfathering may apply to existing pre 1 July 2013 arrangements
Grandfathered
The existing client arrangements as at 1 July 2013 can be assigned / transferred to a new adviser subject to same arrangements being in place with both licensees. However you should seek legal advice on how the sale contracts are structured.
Grandfathered
This is grandfathered however note the impact of Stronger Super legislation on default funds. No
Client payments to advisers align your interests with the client. This is what the legislation is intended to do. This can be accepted and is disclosed in the SOA / ROA.

79. Non-monetary benefits
Benefits where a payment does not occur between two parties are non-monetary.
Non-monetary benefits are sometimes referred to as soft dollar benefits.
A non-monetary benefit can be allowed if it is not capable or reasonably capable of influencing the advice given to a retail client.
If non-monetary benefits are deemed to be conflicted remuneration, then a ban applies on amounts greater than $300.
This applies to both benefits given from life insurance providers as well as non-life insurance providers.
For soft-dollar benefits <$100 you do not have to record them
For soft-dollar benefits >$100 up to $300 you must record this in your alternative remuneration register.
For benefits >$300 you cannot accept these

80. Non-monetary benefits
Frequency of benefits
 Note that the benefits above may be regular or frequently given (more than 3 times over a 12 month period).
 If benefits are similar in nature (e.g. 4 dinners provided by a product manufacturer to an adviser within 12 months) they may be treated as related and all 4 dinners added as one benefit to see if they exceed the total $300.
If benefits are unrelated / once-off then each individual benefit can be up to $300.
Non-monetary exemption
Benefits with an educational or training purpose – not conflicted if it has a genuine educational or training purpose that is relevant to providing financial product advice. The benefit must:
Take up at least the lesser of 6 hours a day or 75% of the time spent on the course; &
The participant or their employer or AFS licensee must pay for travel and accommodation relating to the course, and events and functions held in conjunction with the course.
Benefits for IT & Support – not conflicted if it is for the provision of IT software and support, and the benefit is related to providing financial product advice about the products issued or sold by the benefit provider; and complies with the conditions in the regulations. The benefit must:
be provided by the owner or distributer of the software;
access to an IT “help desk” for problems that an AFS licensee or representative experiences in using admin platform software where the benefit is provided by the software owner or distributer; and
access to a website to place client orders.

81. Non-monetary benefits
Benefit – includes following examples (but not limited to)
Free or subsidised business equipment (Computers and other hardware, software, IT support (e.g. accounting, anti-virus and software) and stationery)
Hospitality (Tickets to sporting events or concerts and subsidised travel)
Lunches and dinners provided / entertainment
Free use of conference facilities, training rooms for advisers
Arranging of loans to other licensees or representatives
Attendance at networking events (Conference) domestic and overseas.
Provision of marketing services (brochures, newsletters, promotional documents)
Promotions or other ways of recognising an employee based on product recommendations / sales

82. Do you employ advisers?
Employers have specific obligations to ensure they do not provide conflicted remuneration payments to their employees who give advice to retail clients after 1 July 2013.
Employers should consider the following questions.
Do you employ advice giving employees?
Do you reward employees based on the total amount of $FUA implemented or Specific Product volumes recommended?
Do you have long term incentive programs in place where rewards are calculated based on the volume of products implemented?
Have you sought HR legal advice on which measures may be conflicted?
Have you sought HR legal advice on how to restructure contracts / scorecards before 30 June 2013?

83. Employees – Salary vs Bonuses
Fixed Salary
Salary payments and SGC are not conflicted remuneration, however, if you attach any conditions to them based on the amount of product sold or volume of funds implemented, they can influence the advice and can be conflicted.
Variable benefits (bonuses, rewards and recognition)
Bonuses
Share of Revenue
Criteria for promotion and salary increases
attendance at networking and entertainment events
reward-focused conferences
Long term incentives such as shares or options in the business
Care needs to be taken on how these benefits are calculated and how closely they are linked to the volume of product implemented or advice given.
Generally an adviser’s contribution to the total revenue or net profit (regardless of product recommended) to your business or division will be less likely to be conflicted than an adviser’s scorecard being linked directly to $FUA implemented.   

84. Rewarding Employees   
When rewarding the Adviser, consider other criteria in addition to revenue generated
Meeting employer compliance policies – an “outstanding compliance rating”
High levels of client satisfaction
Client retention
The number of new clients the employee has brought to the business
Professional development achievement
Team and corporate value

85. Issues to consider when evaluating performance benefits
Performance Based Bonuses
Issues to consider when evaluating performance benefits
Purpose of the Performance Benefit
Consider the behaviour you are trying to encourage through the benefit. For example is the scorecard criteria designed to encourage best interests advice.
Link between the benefit & financial product advice
How direct is the link between the benefit and the value/number of financial products recommended to clients? It is likely to be conflicted if based on the volume of product sales compared to one based on the profitability of an employee’s business unit.
Involvement of the recipient in the advice giving process
How directly involved is the recipient? If the recipient helps prepare the advice but does not provide input into the recommendations made to the client, the performance benefit is less likely to be conflicted.
Environment in which the benefit is given
Is the benefit given in an environment that encourages good financial advice that is in the client’s best interests? Consider including compliance with internal processes and legal requirements, adviser training undertaken etc.
Weighting of the benefit in relation to total remuneration
What is the relative proportion of the benefit to the overall remuneration of the employee, which includes the benefit and salary?

86. Rewarding Employees
An adviser receives a $5,000 bonus from their employer.
The bonus was paid in recognition of
client satisfaction
an increase in new clients
productivity
outstanding compliance ratings
developing referral networks.
This is unlikely to be conflicted remuneration because it would not reasonably be expected to influence the financial product advice given.
ASIC are less likely to scrutinise performance benefits that are designed to more closely align the interests of employees who provide advice to retail clients with the interests of their clients.
Where the remuneration is based on total employer profitability (e.g. $100,000 fee for service generated), as opposed to employee individual sales ($100,000 commission), would not be considered conflicted remuneration if it could not be reasonably expected to influence the advice give.

87. Activity 1 – Remuneration payments
Consider the following remuneration payments that Advisers typically receive.
Review the following payments and decide if the payments are permitted from 1 July 2013.
Benefit
Conflicted Remuneration?
If yes - Grandfathered?
You recommend OneCare Income Protection to a client after 1 July and receive 115% upfront commission.
You have a client with an AMP Super Account that has been active with you as their Adviser since You receive a monthly commission payment of 0.6%pa.
You have a client transfer their Super account to you in July The previous Adviser was receiving ongoing commission of 0.8%.
You have a large Corporate Super account as a client. You currently receive a trail commission which has been in place for the past 5 years.
You agree with a client to charge a one-off ASF of $1,100 for the cost of your advice commencing July 2013. No
Yes
Yes
Yes No No

88. Activity 2 – Soft Dollar benefits
Below are soft dollar benefits that Advisers may have received in the past. Using the decision tree provided, decide if these benefits are permitted to be provided and you are able to receive from 1 July 2013.
No Yes
Yes No
Yes No
Yes No
No Yes
No Yes
Yes No
Yes No

89. Activity 2 - Soft Dollar benefits
Below are soft dollar benefits that Advisers may have received in the past. Using the decision tree provided, decide if these benefits are permitted to be provided and you are able to receive from 1 July 2013.
No Yes
Yes No
Yes No
No Yes
Yes No
No Yes
Yes No

90. Questions & Group Discussion
May 2013

91. Conclusion Annual Disclosure
From 1 July 2013, all new and existing clients who receive ongoing advice must be provided with a Fee Disclosure Statement (FDS).
Best Interests Duty
From 1 July 2013 all Advisers must ensure that they have acted in their client’s best interests, and prioritised the client’s interests above their own or the Licensee.
Advisers must ensure their advice is appropriate as well as meeting the Best Interests Duties by demonstrating and providing evidence that they have followed the ‘safe harbour’ duty and related obligations
Conflicted Remuneration 
Advisers will no longer be able to receive initial or trail commissions on new investment products from 1 July Any trail commission paid on Investment Loans, regardless of when the loan was established, are not permitted.
 Employers (Proprietors) have specific obligations to ensure they do not provide conflicted remuneration payments to their employees who give advice to retail clients after 1 July 2013.

92. Support Adviser Services New FOFA section – coming soon ASIC website
  ASIC Regulatory Guides (RG)
RG 175 Financial product advisers—Conduct and disclosure
RG 245 Fee Disclosure Statements
RG 246 Conflicted remuneration
Regional Practice Development Manager or Practice Development Coach

93. Appendices
May 2013

94. The impact of Stronger Super and MySuper
General fee rules
Transition to MySuper

95. General fee rules
Apply to ALL super funds (except SMSFs and PSTs) from 1 July 2013
Entry fees banned
Conflicted remuneration banned
Exit fees, switching fees and buy/sell spreads limited to cost-recovery basis
Rules apply to performance-based fees

96. Transition to MySuper 1 January 2014
All default contributions must be paid to a MySuper fund
New contributions for both existing and new members
Existing balance can remain in existing fund
Commission can be paid on FUM and life insurance
1 January July 2017
Exact date agreed between APRA and Trustee
Existing balance transferred to MySuper fund
Accrued default amounts
All commission ends
FUM and life insurance

97. MySuper and advice
No bundled personal advice (except for intra-fund advice)
MySuper funds can provide intra-fund advice
Cost of intra-fund advice can either be shared across the MySuper membership or charged to those who use the service
Fees for advice (outside intra-fund advice) would be on a fee-for-service basis
Negotiated between member and adviser
Paid from the member’s account
Payments for advice would require express annual renewal
No upfront or trail commission
No shelf-space or volume rebates