Draft FoFA Legislation Tranche 1 released

1. Draft FoFA Legislation (Tranche 1) released Andrew Lowe Head of Technical Services

2. 2 Draft FoFA Legislation released A brief FoFA timeline Tranche 1 Opt-in Best interests Enhanced ASIC powers Tranche 2 Further detail announced

3. 3 Government’s initial position released April 2010 Treasury’s initial consultation concluded in early 2011 Government’s updated position released April 2011 Draft legislation deferred Two tranches for public comment Legislation to be introduced into Parliament late 2011 Government remains committed to previously announced commencement dates A brief FoFA timeline

4. 4 Tranche 1 The Government has released the first tranche of draft FoFA legislation for public comment Opt-in Best interests Enhanced ASIC powers Submissions invited through to 16 September 2011

5. 5 A prospective measure New arrangements for new clients Will not apply to existing clients Where the client has been provided with financial product advice as a retail client by the licensee or AR before 1 July 2012 Ongoing adviser fees will require “opt-in” every two-years Clients can, however, “opt-out” at any time Opt-In

6. 6 Annual prescribed fee disclosure Outlines fee paid in previous year Description of service entitled to and provided Fee and service for coming year Two yearly renewal notice Issued at least 30 days prior to renewal Details mechanism to opt-in and consequences of failure to opt-in Can be renewed at any time If no opt-in, adviser fee and liability for further advice ceases 30 day grace period Opt-In

7. 7 A wide range of administration mechanisms appear possible Practicalities and adviser demand will be highly variable Prohibition on certain termination fees for ongoing advice arrangements Penalties for non-compliance $50,000 for an individual $250,000 for a body corporate Opt-In

8. 8 Best interests Requires an adviser to act in the best interests of the client If there is a conflict between the client’s and the adviser’s interests, to give priority to the client’s interests Provides steps to acting in the best interest: Identifying objectives, financial situation and needs disclosed by the client Identifying subject matter requested by the client Reasonable inquiries to obtain complete and accurate information Advise if it is “reasonably apparent” that other advice warranted Assess whether adviser has appropriate expertise and decline to advise if not Reasonable investigation into products

9. 9 Best interests Reasonable investigation does not require analysis of every product available No requirement to investigate products that are not on the adviser’s APL (unless the product is being replaced) Resulting advice must be appropriate No contracting out of this obligation Obligation on licensees to take reasonable steps to ensure their representatives’ compliance Penalties for non-compliance $250,000 for an individual $1,000,000 for a body corporate

10. 10 Enhanced ASIC powers ASIC can refuse or cancel/suspend a licence where a person is likely to contravene its obligations Extend the statutory tests so that ASIC can ban a person who is not of good fame and character or not adequately trained or competent to provide financial services Clarification that ASIC can ban a person who is involved, or is likely to be involved, in a contravention of obligations by another person

11. 11 Tranche 2 The Government is expected to release the second tranche of draft FoFA legislation for public comment (expected mid to late September) Ban on conflicted remuneration (commissions and volume payments) Ban on soft-dollar benefits Ban on asset based fees where a a client uses leverage Limited scope advice A brief period of public consultation will follow

12. 12 Further FoFA detail announced Life insurance commissions Government has modified the application of the proposed ban on commission on life insurance via super from 1 July 2013 Ban will now apply to commissions on: Group life insurance in all super products; and Any life insurance in a default or MySuper product Life companies will need to unbundle disclosure on life policies disclosing the dollar and percentage value of commissions Uniform clawback of commissions required Remove upfront commission on “replacement” policies to reduce “churn” (i.e. level commission only) Further detail on life commissions in Tranche 2

13. 13 Further FoFA detail announced Grandfathering The ban on conflicted remuneration will not apply to existing contractual rights of an adviser to receive ongoing product commissions The reforms will prohibit future payments to licensees (or representatives) in respect of new investments through a platform but will grandfather future payments in respect of investments accumulated prior to 1 July 2012

14. 14 Further FoFA detail announced Extension of ban on soft dollar benefits The previously announced ban on soft dollar benefits of greater than $300 will be extended to life insurance Further detail on soft dollar in Tranche 2 Application of FoFA to stockbrokers Where stockbrokers provide financial advice to retail clients the FoFA reforms will apply However, carve outs granted for certain activities: Stamping fees Employees remunerated on brokerage Restricting the term “financial adviser/planner” Treasury to issue a public consultation paper by the end of 2011

15. 15 Draft FoFA Legislation released A brief FoFA timeline Tranche 1 Opt-in Best interests Enhanced ASIC powers Tranche 2 Further detail announced

17. FoFA response – RI’s plan of attack KEY STEPS: 1 September - Communicate tranche 1 changes and identify key issues in an adviser webinar. PC to interview Andrew Lowe and open to all for questions. September (date TBC) – Communicate tranche 2 changes, produce second webinar and open for further questions. Mid to end-September - Work with OnePath and industry associations, including the Financial Services Council, to outline the areas requiring clarification/we would like amended in the final legislation. Mid-October – Discuss best approach options with PAC and selected proprietors. Late-October – Circulate draft discussion paper to all proprietors. This will outline suggestions for ‘RI best practice’ policy to guide advisers on all key issues. End-October – Incorporate feedback on discussion paper and circulate to all. November to early 2012 – Develop project plan to implement ‘RI best practice’ - implement and communicate throughout the process.