Competition in the financial services sector has been dealt a blow with the Senate’s defeat of the FoFA Regulation on 19 November 2014 knocking out the Government’s amendments that would’ve allowed financial advisers to move more freely between AFS licensees. Owners of small financial services businesses also face renewed uncertainty in terms of succession planning following the disallowance of the FoFA rules that sought to maintain certain grandfathered benefits upon the sale of a financial services business.
While a general ban on conflicted remuneration has applied to remuneration arrangements entered into since 1 July 2013, the Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014 (FoFA Regulation) had further broadened the FoFA grandfathering arrangements to facilitate competition in the financial services sector. Specifically, the Government’s FoFA Regulation had sought to enable advisers to move between Australian Financial Services (AFS) licensees with their clients (who had an interest in the relevant platform or product prior 1 July 2014) whilst continuing to receive pre-1 July 2014 grandfathered remuneration. The Regulation had also clarified that when a business was sold (and that business was acting in the capacity of a platform operator), the rights to the grandfathered benefits would be transferred to the purchaser, who could then receive the ongoing benefit.
Even accepting that these grandfathering provisions somehow undermined the broader principle banning conflicted remuneration, the collateral damage to competition from the Senate’s disallowance of the FoFA Regulation will also be a negative for consumers.
Further details on the FoFA measures are covered in Thomson Reuters Australian Financial Planning Handbook 2014-15.