Grandfathering traps advisers

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Industry bodies are currently in talks with Treasury to clarify how new grandfathering arrangements work when an adviser changes employer.

The regulations, released on 28 June, raise more questions about what happens to grandfathered benefits when an adviser joins a new licensee.

AIOFP executive director Peter Johnston says, “It certainly has caused some extreme worry amongst all advisers as it locks you into your current employment/relationship if you want to maintain your grandfathered revenue stream.

“Basically, if you chose to leave your current relationship your grandfathered revenue status ceases.”

ASIC RG 246 states that: A benefit under an arrangement entered into before the application day may be transferred to another AFS licensee or representative on or after the application day without the conflicted remuneration provisions applying to the benefit.  Whether this is the case depends on the circumstances, including the form of the arrangement and how the transfer is made.

Pass-through provisions in Regulation 7.7A.16F say “the benefit, as passed through, was given under an arrangement that was entered into before the application day”.

An institutional compliance spokesperson said, “In order for a licensee to be able to pay on a benefit to an adviser who joins that licensee on or after 1 July 2013 we need to conclude that the arrangement referred to here is the arrangement between the product provider and licensee.”

The section could, however, refer to an arrangement between the licensee and adviser – which may not exist where an adviser joins a licensee on or after the date.

Grandfathered benefits passed on to a third person, under a pre-application day arrangement, are excluded from the ban on conflicted remuneration.

The regulation states: “In order for the benefit to be passed on, the agreement under which the benefit is passed-on must have been entered into before the application day…”

Australian Government is still consulting on Regulations to clarify how the grandfathering provisions apply if a party to an arrangement changes.

What is clear:

  • Grandfathered benefits (paid under a pre-1 July 2013 arrangement between a product provider and licensee) can be paid after 1 July 2013 to that licensee;
  • Where such a benefit is payable by that licensee to advisers (under a pre-1 July 2013 arrangement) that benefit can be passed on to those advisers; and
  • Where another licensee has in place a pre-1 July 2013 arrangement with that same product provider and advisers move to the at licensee on or after 1 July 2013 payments can be made to the new licensee consistent with their pre-1 July 2013 arrangement.

More on grandfathering and your options, tomorrow.

  • geoff moore on 18/07/2013 3:05:16 PM

    Very convenient for some managers to start dropping off trails, blame the legislation and in turn promptly improve their bottom line!

    Not what was intended by FOFA; adviser should not have to stay with a sub-standard licensee. So Managers - how about being sensible? Show some leadership!

  • GAB on 18/07/2013 9:21:05 AM

    "How to destroy business confidence and distort markets", Shorten & Whitely 2012. $59.95 at Dymocks.

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