November 2015 Technical Workshops Corporate Governance Update

Education Update 1.What is required to renew your tax (financial) advice qualifications in 2017  To meet the requirements of a Board approved course in Australian taxation law for registration as a tax (financial) adviser, you need to have completed one tertiary level unit in taxation law covering the required topics before your renewal date in  The Kaplan course has replaced the Advanced Diploma Tax Fundamentals course since 2013 to meet the TASA requirements. So if you have done this course since 2013 you will not need to repeat but just do the gap short answer assessment.  If you have done the tax module pre 2013 (which is most TAE advisers) there will be an extra 2 tax modules we will need to do.  The reason for the additional requirements is that TASA wanted a short answer section added to the current multiple choice assessment (to show that the advisers knowledge on tax met their requirements). The Advice Exchange Pty Ltd2

What is TAE doing to assist? TAE are in discussions with Kaplan with the view to setting up a TAE group training session(s) to cover off these subject in early to mid This way everyone could work through the requirements together and have someone to bounce ideas off for the assessments. Other option is that you can enrol online and do subjects solo, TAE have also arranged for a discounted rate with Kaplan on behalf of our advisers for this option - so please let me before you enrol. If someone doesn’t update their tax subjects then come 2017 they will lose the tax (financial) advice qualification and will not be able to discuss tax in any way in their advice (including with Superannuation). The Advice Exchange Pty Ltd3

2. SMSF studies  Since last tech day in September we have had 5 TAE advisers complete the SMSF quals, with another 2 to 3 looking to enrol at present.  Just wanted to say a big thank you for all being so motivated on this front. The Advice Exchange Pty Ltd4

3. Industry Education update  The Government is still reviewing legislation re education requirements for the Financial Advice industry (was originally due to commence mid 2016)  It is proposed that new advisers will need to hold a degree  Whilst discussions are still underway for existing adviser without a degree  Options being considered:  ADFP will be sufficient for existing practitioners  A RPL one off exam to be sat by existing practitioners (along with a years of practice requirement) – this was recommended by Parliamentary joint committee and seems like most popular option at present  TAE will watch this space over coming year and keep you updated. The Advice Exchange Pty Ltd5

Life Insurance Reform Update  Announced on Friday 6 November 2015, Assistant Treasurer Kelly O'Dwyer said all reforms would apply both to personal and general advice and are expected to commence from 1 July  The three-year ‘claw back’ measures will now be reduced to two years. This means that from 1 July 2016, all new policies will be subject to the following ‘claw back’ provisions:  in the first year of the policy, to 100% of the commission on the first year's premium; and  in the second year of the policy, to 60% of the commission on the first year's premium.  As previously proposed, full upfront remuneration structures will no longer be available.  All hybrid remuneration payments (including GST) will be capped to a maximum of:  88% of premium in the first year of the policy – from 1 July 2016;  77% of premium in the first year of the policy – from 1 July 2017; and  66% of premium in the first year of the policy – from 1 July  Ban on other volume-based payments from 1 July 2016, with appropriate grandfathering arrangements, consistent with the Future of Financial Advice laws.  Life insurance companies can offer fee-for-service insurance products to support advisers who wish to operate on a fee-for-service model.  Life insurance companies to begin reporting policy replacement data to ASIC from 1 July  A life insurance code of conduct to be developed by the FSC by 1 July  ASIC to conduct a review of these measures by the end of Hybrid Commission Model from 1 July 2018:  The policy will consist of a maximum total upfront commission of 60 per cent of the premium in the first year.  It will also include a maximum ongoing or trail commission of 20 per cent of the premium in all subsequent years. The Advice Exchange Pty Ltd6

Know Your client requirements  KYC requirements are being updated for many fund managers at present.  These are yet to be fully communicated to the industry.  CFS sent an last month advising that they will be issuing a new KYC guide on 30/11/15 so keep an eye out for this when it arrives. The Advice Exchange Pty Ltd7

What is the difference between general and personal advice? The Advice Exchange Pty Ltd8 General Advice General advice is financial product advice that is not personal ie a general recommendation or opinion in general terms. Personal Advice Personal advice is provided where the adviser has considered one or more of the clients objectives, financial situation and needs, or a reasonable person might expect the adviser to have done so. It is important to understand the difference as each requires a different standard of disclosure.

Learnings from Audits Self Managed Superannuation Fund Advice  SMSF advice seems to be main area tripping people up  Ensure that SOA is addressed to correct entity (Trustees)  That you are clear on what you are providing advice on – if SMSF is already established make it clear that you are not confirming/advising the appropriateness of the structure  Ensure that SOA is clear on when advice is for trustees and when it is for individuals (if the SOA is covering advice to both) In 2013/14 ASIC found the following issues in relation to SMSF advice:  the low balance with which SMSFs were established  the advice not being sufficiently tailored to the needs of each client  inadequate comparison of clients' existing superannuation to the recommended SMSF  inadequate consideration of suitable alternative strategies that would have met clients' needs, and  inadequate consideration of clients' long-term retirement planning objectives. TAE paraplanning are well versed at SMSF SOA’s and are happy to assist. The Advice Exchange Pty Ltd9

Learnings from Audits Risk Profiling  Ensure that the risk questionnaire is completed  The score is tallied  The Risk Profile section is confirmed  If there is any variance between score and profile or weightings (+/- 10%) please ensure this is explained in SOA. The Advice Exchange Pty Ltd10

Risk & Compliance Committee  The Risk and Compliance Committee has been set up by the Board to oversee all compliance management functions within The Advice Exchange Pty Ltd (TAE) AFSL in accordance with the TAE Risk and Compliance Framework.  This is a Committee of the Board and will reports on a quarterly basis  The RCC discusses the following:  Risk management of TAE –i.e. policies procedures  Incident Reporting  CPD status for each adviser  Education requirements  Industry updates  Audit outcomes The Advice Exchange Pty Ltd11

Last Risk & Compliance Committee 1. All TAE policies and procedures were endorsed (15 in total) These are also available in the Corporate Governance section of website 2. Education requirements for 2016 confirmed (SMSF/ TASA) 3. Audit scoring system was updated as follows: The Advice Exchange Pty Ltd 12 ScoreExplanation A Advice and files are of high quality, only minor issues identified and any action items are easily implemented B Meets standards, minor issues identified that require action by next audit (unless identified otherwise in action plan). C Below standard, major issues identified that require action within days and may involve client interaction/communication. DCritical issues identified, immediate action needed, may include client interaction /communication.