The intention of FoFA is to remove conflicted payments that could reasonably be expected toinfluence the advice you provide to your client or the choice of product you recommend. This presentation outlines what you need to know about Conflicted Remuneration.

1. FoFA Conversation Series
Conflicted Remuneration
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2. Conflicted Remuneration
The intention of FoFA is to remove conflicted payments that could reasonably be expected to
influence the advice you provide to your client or the choice of product you recommend.
The Ban on Conflicted Remuneration
This reform will see the introduction of a ban on conflicted remuneration, including commissions.
Going forward after 1 July, licensees and financial advisers will not be allowed to give or receive
payments or non-monetary benefits if the payment or benefit could reasonably be expected to
influence financial product recommendations or financial product advice provided to retail clients.
Exceptions to the ban on conflicted remuneration are provided in certain circumstances.
After 1 July, volume payments (payments dependent on the total number or value of financial
products of a particular class or classes) will be considered conflicted however, financial advisers
will have the opportunity to prove otherwise.
Through this reform financial advisers will be encouraged to become more client-focused, as more
of their fees will be paid directly by the client rather than indirectly through product commissions.
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3. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
One of the lesser known changes introduced by FOFA is the prohibition on employers to give an
employee who is responsible for providing financial advice (general or personal advice) to retail clients
conflicted remuneration. This includes any performance based payments such as:
• bonuses;
• pay rises;
• promotion or other forms of recognition;
• reward-focused entertainment or travel; and
• shares or options in the employer’s business.
Note: This is not intended to be an exhaustive list.
The introduction of this prohibition does not mean you can’t pay any form of incentive payment, just
that you will need to take particular care in the construction of employment agreements, calculation of
these payments and the record keeping you will need to do to prove that you have followed the
requirements of the law.
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4. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
What about current agreements
Do I have to review and change effective 1st July 2013?
No. Like all other agreements that are based on contract and legally in force before 1st July 2013,
these can be grandfathered. You do however need to take particular care with the following:
• Agreements not in writing – where your existing agreements are not currently evidenced in writing
or the bonus is not in writing, it is unlikely that you will be able to be grandfather these
agreements as they will not qualify as existing agreements in place.
• Incidental changes to the contract after 1 July – while it is possible to make a small change
without triggering a new contract, some changes will be so substantial and must comply with the
conflicted remuneration legislation. Whether the change will trigger a new contract will be a
matter to be determined under contract law.
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5. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
What issues should I consider when evaluating performance benefits
to ensure they meet the requirements?
Eligibility criteria
What criteria must be met for an employee to be eligible to receive a performance benefit, and could
satisfying such criteria reasonably be expected to influence the advice given? For example, a relevant
consideration is whether the performance benefit explicitly or implicitly encouraged the
recommendation of a particular product.
The more difficult it is to satisfy the eligibility criteria, the less likely that the performance benefit could
reasonably be expected to influence the advice given. One way to measure this might be by reference
to the proportion of employees who are able to meet the criteria.
The purpose of the performance benefit
Consider the behaviour you, as an employer, are trying to encourage through the performance
benefit? For example, the criteria that make up the scorecard may appear to be designed to
encourage an employee to recommend that clients acquire specific financial products regardless of
their interests, which means the performance benefit is likely to be conflicted remuneration. It may
also cause advice to be given that does not comply with the best interest duty and related obligations
in Div 2 of Pt 7.7A
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6. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
What issues should I consider when evaluating performance benefits
to ensure they meet the requirements?
Weighting of the benefit in relation to total remuneration
What is the relative proportion of the benefit compared to the employee’s overall remuneration? For
example, the overall remuneration would include the performance benefit and any other forms of
remuneration (e.g. salary).
Link between the benefit and financial product advice
How direct is the link between the performance benefit and the value or number of financial products
recommended or acquired by clients, based on the advice provided by the employee? For example, a
performance benefit is more likely to be conflicted remuneration if it contains a criterion based on the
volume of product sales compared with one that contains a criterion based on the profitability of an
employee’s business unit: for more information, see RG 246.143.
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7. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
What issues should I consider when evaluating performance benefits
to ensure they meet the requirements?
Involvement of recipient in advice giving process
How directly involved in the advice giving process is the recipient of the benefit? For example, if the
recipient of a benefit helps prepare the advice but does not provide input into the recommendations
that are made to a retail client, the performance benefit is less likely to be conflicted remuneration.
Excluded benefits
If part of a performance benefit is not conflicted remuneration because one or more exclusions
apply, it is not relevant to consider that part of the benefit in determining whether the rest of the
performance benefit is conflicted remuneration.
Evidence of assessment
ASIC expects that you will keep accurate records that enforce your decision and prove that you have
complied with the legislation in arriving at the value of any performance benefit.
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8. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
What issues should I consider when evaluating performance benefits
to ensure they meet the requirements?
Environment in which the benefit is given
In addition to the factors above, it is also relevant to consider whether the benefit is given in an
environment that encourages the provision of good quality financial product advice that is in the
client’s interests.
This could be specifically evidenced if, to qualify for the benefit, the recipient must also satisfy other
criteria, such as criteria based on the quality of advice given, consumer satisfaction and compliance
with internal processes and legal requirements.
It may also be relevant to consider non-performance-based practices such as:
• training;
• monitoring and supervision; and
• workplace policies and procedures, including the consequences of not complying with such
policies and procedures.
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9. Conflicted remuneration to employees of a
Corporate Authorised Representative (CAR)
Important actions to take towards being FoFA ready
 Ensure you have identified how much of your revenue is received via commission.
This will help you determine the payments to your practice that will be grandfathered
and that you can continue to receive. It’s likely that the average commission book will
wind down more quickly than expected. Practices that aren’t prepared to replace this
revenue with fee income from new clients may find themselves under pressure.
 Ensure your practice has a register to allow your financial advisers to record all exempt
non-monetary conflicted remuneration benefits received between $100 and $300, or that
fall within the other exemptions. You will need to make sure that this register is accurate
and kept up to date on a regular basis. This can be done through your Alternative
Remuneration register on PF+. Please note that this Register must be made available to
any person on request.
 Ensure that you have a process in place to review soft dollar/alternative remuneration
benefits that you and/or your practice receive. It’s likely that a range of investment
management firms will continue to offer soft dollar/alternative remuneration benefits. It is
important that you assess each benefit offered to you and/or your practice and ensure you
are not accepting conflicted remuneration.
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