FOFA Where are we at

FOFA Refresher BEST INTERESTS DUTY Advisers will be required to act in the best interests of their retail clients and place their clients’ interests ahead of their own when developing and providing personal advice. Financial advisers can establish that they have met this requirement by undertaking a number of specified steps to assist in determining what the best interests of the client are.

FOFA Refresher BEST INTERESTS DUTY – Steps Required to Satisfy identify the objectives, financial situation and needs of the client that were disclosed to the provider by the client through instructions; you must identify: ▫ the subject matter of the advice that has been sought by the client (whether explicitly or implicitly); and ▫ the objectives, financial situation and needs of the client that would reasonably be considered as relevant to advice sought on that subject matter (the client’s relevant circumstances); ▫ where it was reasonably apparent that information relating to the client’s relevant circumstances was incomplete or inaccurate, made reasonable inquiries to obtain complete and accurate information; ▫ assessed whether the provider has the expertise required to provide the client advice on the subject matter sought and, if not, declined to provide the advice; ▫ if, in considering the subject matter of the advice sought, it would be reasonable to consider recommending a financial product:  conducted a reasonable investigation into the financial products that might achieve those of the objectives and meet those of the needs of the client that would reasonably be considered as relevant to advice on that subject matter; and  assessed the information gathered in the investigation;  based all judgements in advising the client on the client’s relevant circumstances;  taken any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.

FOFA Refresher OPT IN AND FEE DISCLOSURE Applies only in those circumstances where the client hasn’t been provided advice before (as a retail client) and that person enters into an arrangement with the licensee or representative for ongoing services where fees are payable for more than 12 months (Ongoing Fee Arrangement). Advisers will be required to request their retail clients opt-in, or renew, their advice agreements every two years if clients are paying ongoing fees. In addition, an annual statement outlining the fees charged and services provided in the previous 12 months must be provided to clients paying ongoing fees.

FOFA Refresher OPT IN AND FEE DISCLOSURE There are two exclusions to Ongoing Fee Arrangements; Insurance premiums Some arrangements where by the following is evident: ▫ Total is fixed at the time of the agreement ▫ Fees payable are by instalments over a fixed period ▫ Fees relates to personal advice given before the arrangement is entered into ▫ Fee is not dependent on amount invested as a result of advice given ▫ Person can’t opt out of payment. It is a condition of Ongoing Fee Disclosure that the client can opt out at any time. They are only liable to pay the amount accrued which remains unpaid at the time they terminate along with any costs that are a direct result of the termination.

FOFA Refresher OPT IN AND FEE DISCLOSURE Renewal Notices / Opt In Every alternate year the client must be given an ‘opt-in’ renewal notice along with the FDS. This renewal notice must be given before the end of a period of 30 days after the renewal notice day for the arrangement. The renewal notice must be in writing and contain: ▫ a statement that the client can renew the arrangement by providing a written notice that they wish to renew ▫ a statement that the arrangement will terminate if the client does not renew and no further advice will be provided or fees charged ▫ a statement that if the fee recipient does not receive a notification to renew from the client, within 30 days of the fee disclosure statement and renewal notice being given to the client, it will be presumed that the client no longer wishes to proceed with the arrangement. No need to include product fees (a fee that the issuer of a financial product charges a retail client for the management of and operation of a financial product). Renewal Notice Day is the second anniversary of the last day on which the arrangement was entered into or the day on which the arrangement was renewed. The ‘written’ statement advising clients of renewal, can include fax, , SMS or via an online facility.

FOFA Refresher BAN ON CONFLICTED REMUNERATION s963E Licensee must not accept Conflicted remuneration s963F – Licensee must ensure Compliance s963G Authorised Representative must not accept conflicted remuneration s963H Other Representatives must not accept conflicted remuneration s963J Employer must not give employees Conflicted remuneration – Does this apply to reps, ARs and/or CARS? s963K Product Issuer must not give conflicted remuneration An issuer or seller of financial product must not give a financial services licensee or a representative conflicted remuneration. This section has been specifically modified by Regulation 7.7A.16 has been specifically passed to exempt a benefit given by a platform operator under an arrangement entered in to before 1/7/2013. s963L Volume Based benefits presumed to be Conflicted Remuneration Unless the contrary have been proven, the following are presumed to be conflicted remuneration: A benefit access to which or value of which is wholly or partly dependent on the total value or number of financial products of a particular class recommended by a licensee to retail clients or acquired by retail clients to who the licensee or representative provides advice.

FOFA Refresher BAN ON CONFLICTED REMUNERATION Other Banned Remuneration s964 A Platform Operator must not accept volume Based Shelf Fees s964D Financial Services Licensee must not charge asset based fees on borrowed Amounts s964E Authorised Representatives must not charge asset based fees on borrowed Amounts Authorised representatives must not charge an asset based fee on a borrowed amount used or to be used to acquire financial products by or on behalf of the client. There is some allowance for amounts that are not “reasonably apparent”, however, there is a duty to make reasonable enquiries.

FOFA Refresher BAN ON CONFLICTED REMUNERATION Exemptions / Exclusions There are a number of exemptions which have been specifically identified: ▫ Monetary and Non-monetary Benefits  General insurance product;  Life risk insurance product, other than:  a group life policy for members of a superannuation entity (product is issued to an RSE licensee of a registrable superannuation entity, or a custodian in relation to a registrable superannuation entity, for the benefit of a class of members of the entity);  a life policy for a member of a default superannuation fund (the product is issued to an RSE licensee of a registrable superannuation entity, or a custodian in relation to a registrable superannuation entity, for the benefit of a person who is a member of the entity; and the person has not given written notice to an employer of the person that the fund is the person’s chosen fund, but the employer of the person makes contributions to the fund for the benefit of the person.

FOFA Refresher BAN ON SOFT DOLLAR BENEFITS Non-monetary Benefits – exemptions (cont)  Benefits where payments are made from manufacturer to adviser who has not provided advice to client as a retail client in past 12 months  Benefit is of less than an amount prescribed ($300) and identical or similar benefits are not given on a frequent or regular basis;  Benefit has a genuine education or training purpose, is relevant to the provision of financial product advice to persons as retail clients and complies with regulations;  Benefit is the provision of information technology software or support, is related to the provision of financial product advice to persons as retail clients in relation to the financial products issued or sold by the benefit provider and complies with the regulations;  Benefits for recommending basic banking products for representative of ADI and the licensee or representative does not, in the course of recommending that basic banking product, give other financial product advice that does not relate to a basic banking product.

FOFA Refresher GRANDFATHERING For constitutional reasons, the legislation that will implement FoFA cannot, in most cases, ban payments made under arrangements or contracts which are entered into before the reforms commence. This means, for example, that commissions which are currently being paid by product manufacturers to advisers in relation to clients’ existing investments will not be banned and can continue to be paid after the adviser becomes subject to the reforms. Advisers will only be permitted to receive conflicted remuneration paid under arrangements entered into before 1 July There is a lots of misunderstanding about regarding what has been grandfathered. To date the only specific grandfathered arrangement is the right for Platform operators to give conflicted remuneration provided the arrangement is in place before 1/7/2013. Commission has been effectively grandfathered due to it not being captured under Ongoing Fee Arrangements. “Old” service agreements or arrangements whereby advisers charged an Adviser service fee of say 1.1% collected by product may be effectively grandfathered by effect of s962D.

FOFA – What is coming Regulatory Guide on Conflicted Remuneration - imminent Clarification on Grandfathering – may be amended Change of Government?

What TAE is doing Regular updates as ASIC releases guidance Future Proofing your Business process Templates – FDS done, Opt in Provide access to a well-rounded, well researched approved product list Providing support to undertake research for products in an efficient and cost effective manner Assist advisers in articulating product strategy and understanding how to more clearly document reasons for their recommendations. Advisers that have no better reason to justify product selection than the product is “what they or their licensee prefer” will need to rethink their position

FOFA Questions?