RI Advice – FOFA Readiness – practice preparation February 2013

This pack aims to provide an overview of some of the key steps RI practices should take to prepare for meeting their FOFA obligations from 1 July 2013 It includes: –Suggested practice preparation steps for Annual Disclosure & Opt-in, Best Interest & Conflicted Rem –Appendices which provide a brief overview of key requirements It’s important to be aware that some of the FOFA regulations are still being finalised and there may be further changes Practices should refer to their Practice Development Coaches and PDMs if they have any questions or need support FOFA Readiness – practice preparation 1

FOFA readiness – practice preparation Annual Disclosure & Opt-In ActionResponsibilitySupport Group clients in DMSPracticeDMS User Guide Talk to your Prac Dev Coach Ensure processes in place to maintain client groupingsPracticeTalk to your Prac Dev Coach Ensure client segmentation in place so clients paying an ongoing ASF can be clearly identified PracticeRefer to Best Practice > Fee for Service > Client Service Agreement Tools on Adviser Services Talk to your Practice Development Coach or PDM Ensure ongoing service model in place for practice and all clients paying an ongoing ASF have a client service agreement PracticeRefer to Best Practice > Fee for Service > Client Service Agreement Tools on Adviser Services Talk to your Practice Development Coach or PDM Ensure clear client review process in place – use Manage Review process in Xplan PracticeTalk to your Practice Development Coach or PDM C&D clients (non-active paying ASF) – tidy up this segment between now and July 2013 PracticeTalk to your Practice Development Coach or PDM Ensure clear ‘anniversary date’ in place for every client paying an ongoing ASF. Anniversary date is last client review date between 1 July 2012 and 30 June 2013 PracticeTalk to your Practice Development Coach or PDM Opt-in: No specific additional requirements until 2015 other than ensuring ‘anniversary date’ in place for clients paying an ongoing ASF PracticeTalk to your Practice Development Coach or PDM Aim to complete these tasks by end March / early April if possible 2

FOFA readiness – practice preparation Best Interest ActionResponsibilitySupport Be aware of your obligations & the Best Interest ‘safe- harbour’ steps PracticeTalk to your Prac Dev Coach or PDM Refer Appendices Self-check to ensure your current documentation (eg file notes, fact finds, SOAs etc) clearly show you put the client’s best interests first ie you need to have documented ‘evidence’ Practice/AdviserTalk to your Prac Dev Coach or PDM Ensure you’re using all the advice docs and tools available to RI Advisers to help document the advice process, thinking and rationale behind a strategy for a client PracticeTalk to your Prac Dev Coach or PDM Refer to Adviser Services website > Advice & Best Practice sections Check if there are other tools available which you could use to help with documenting the process eg CALS, Chant West PracticeTalk to your Prac Dev Coach or PDM Refer to Adviser Services website > Advice & Best Practice sections Aim to complete these tasks by end May if possible 3

FOFA readiness – practice preparation Conflicted Remuneration ActionResponsibilitySupport Review fee for service model to ensure you’re comfortable that you’ll have continued revenue streams once commissions for investments and super are banned If not, consider: Developing your CVP & CSP Carry out COS and segmentation Implement transition plan Practice/ AdviserTalk to your PDM Review group risk arrangements & cover under default super (in light of commissions being banned) and explore alternative fee model ie Group policies can administer ASFs which need to be agreed with client Look at individual members needs vs. current policy – Is a retail solution in the client’s best interest?* Practice/AdviserTalk to you PDM Ensure all staff are aware that advisers must not charge an asset-based fee on a borrowed amount used to acquire financial products Practice/ ProprietorTalk to your PDM Brief staff on the change of limits to soft-dollar benefits, ie: $100-$300 record on practice register $300+ banned Practice/ProprietorsTalk to your PDM Review remuneration structure of any employed advisers within the practice to ensure nothing conflicted (ie no incentives based on volume) Reconsider KPIs if required eg move to fixed dollar FFS rev, client appts held, profitability etc* Practice/ProprietorsTalk to your PDM Aim to complete these tasks by end May if possible 4 *Note: legislation is yet to be finalised – this may change to Further details to be provided when available

Appendices 5

6 FOFA requirements – Annual disclosure Annual disclosure An annual statement of all ongoing services available to client over past 12 months, all ongoing services provided & ongoing fees charged –Applies to all clients paying an ongoing service fee (including in an ongoing service agreement) –Includes fees paid via platform or directly by client –12 month period based on client’s anniversary date ie when they commenced ongoing fee arrangement –Takes effect from 1 July 2013 (for services provided post 1 July 2012) Penalties for non-compliance: –$50,000 for an individual –$250,000 for a body corporate

7 FOFA requirements – Opt-in Opt-in From 1 July 2015 advisers who comply with certain ASIC-approved codes of professional practice may be exempt from the opt-in provisions More info on opt-in for RI advisers will be communicated well before opt-in is required in 2015 The key thing is to ensure the anniversary date for all new clients post 1July is recorded in Xplan In summary for your information: All new clients from 1 July 2013 with an ongoing fee arrangement must be invited to ‘opt-in’ via a renewal notice every 2 years –The client must elect to renew the arrangement by written notice –The arrangement must terminate if the client does not elect to renew the arrangement within 30 days of the date of the renewal notice –Clients can ‘opt-out’ at any time –Existing clients don’t need to opt-in (considered existing client as long as adviser or licensee remain same) –First opt-in notice must go out in 2015 (ie 2 years) Penalties for non-compliance: –$50,000 for an individual –$250,000 for a body corporate

FOFA requirements – Best interest Standard raised from simply providing appropriate advice Four obligations: –To act in the best interests of the client (s961B) –To provide appropriate advice (s961G) –To give the incomplete advice warning (s961H) –To give priority to the client’s interests (s961J) Advisers must be in a position to show how the advice provided put the client’s interests ahead of their own Satisfy the best interest duty as a minimum by demonstrating the Regulator’s ‘safe harbour’ points Penalties for non-compliance –$250,000 for an individual –$1,000,000 for a body corporate 8

Safe harbour for complying with Best Interest duty Best interests duty ‘Safe Harbour’ s961B(2): 1.Identify the objectives, financial situation and needs of the client; 2.Identify subject matter of the advice sought; 3.Identify the client’s relevant circumstances; 4.Make reasonable enquiries to obtain complete and accurate information; 5.Decline to provide advice if lacking expertise; 6.if recommending a financial product, investigate financial products and assess the results; 7. Base all judgements on the client’s relevant circumstances; 8.Take any other steps in the client’s best interest. 9

FOFA requirements: Conflicted remuneration IncludesComments Any remuneration or benefit from product providers or anyone else which could reasonably influence advice to retail clients. This can be both monetary or non- monetary: Example: Initial and ongoing commissions on managed investments, superannuation and margin loans. Banned from 1 July 2013* This is not limited to simply volume based payments. This can include fixed dollar payment, BOLR, loans etc. Volume payments and bonuses which influence product advice: Volume refers to: The value of financial products recommended. The number of financial products recommended The value of investments by clients. This could impact how you currently remunerate your advisers (e.g. KPI’s based on FUM). Contrary to prior legal advice, performance benefits based on asset based fees likely to be conflicted. Shelf space fees charged by platforms Asset based fees on borrowed investment amounts Volume payments, or dividends from equity arrangements or other interests in white label platforms Soft dollar benefitsLimits changed and ASIC will look at frequency of SDBs. 10 *Note: legislation is yet to be finalised – this may change to Further details to be provided when available