ASIC needs to clarify commissions treated as ongoing fee 'consent': AFA
The use of the word “consent” in the corporate regulator’s guidance on commissions considered as ongoing fees is confusing and more clarity is needed, according to the Association of Financial Advisers (AFA).
Speaking to Money Management, AFA chief executive, Phil Anderson said while he thought the Australian Securities and Investments Commission (ASIC) did “a good job” with the guidance, it needed to provide more clarity on its definition of an ongoing fee.
Anderson pointed to question three of ASIC’s FAQ guidance on ongoing fee arrangements which said: “An ‘ongoing fee’ is any fee (however described or structured) that is paid under the terms of an ongoing fee arrangement between the fee recipient and the client: see section 962B.
“If a third party pays the fee recipient a fee (e.g. commissions), this will generally not be an ongoing fee, where it is paid under a commercial arrangement between a product issuer or platform operator and a fee recipient.
“However, commissions may also be considered ongoing fees if they are paid with the clear consent, or at the direction, of the client.”
Anderson said the word “consent” was likely to confuse advisers as clients already needed to provide consent to the payment of commissions on life insurance products through the Statement of Advice (SoA) and signing the Authority to Proceed.
“Aren’t they already providing consent? I think it’s talking about a higher level of confirmation from the client than a routine fact in the SoA, and they are agreeing to the SoA. Nonetheless the risk is that it causes confusion and uncertainty,” Anderson said.
“I think that this is intended to refer to a situation where there is a dial up commission, rather than a standard life insurance commission.
“It’s the use of the term ‘consent’ so obviously you need to be very careful about how you are treating those life insurance commissions and you’re not putting yourself in that position where someone could argue that point. That’s something we’d like to get more clarity on from ASIC.”
Anderson warned that the regime that would come into force on 1 July and advisers needed to pay attention to it and plan for it.
“Advisers need to get on top of the detail of what is required. They need to understand how the transition period works, the requirements about the 12 months, and the fact that the day they issue the fee disclosure statements (FDS) becomes it becomes the anniversary day going forward,” he said.
“They need to have a very clear plan on how to approach this. You’ve got flexibility in choosing when to provide the FDS from the transition year but you need to be making those decisions in advance.
“They need to understand what they need to do and have a clear plan to do it.”
Recommended for you
Financial Services Minister, Stephen Jones, has assured the cost and time to enter the financial advice profession will soon be halved, as shadow treasurer Angus Taylor pledges to reach 30,000 advisers.
The positive results of the latest financial adviser exam have helped the advice profession reach 15,600 yet again, according to Wealth Data analysis.
Financial advice firms have told Adviser Ratings they are planning to increase their compliance spend by almost a third, including on enhancements to their cyber security which ASIC has identified as an enforcement priority.
The digital advice platform is officially launching into the financial advice sector, offering up its services to practices as a means of engaging with the next generation of clients.
