ASIC to presume guilt on volume rebates
Financial planning groups and product manufacturers will not be granted the presumption of innocence where volume rebates are concerned, under the Australian Securities and Investments Commission's (ASIC) proposed regulatory approach to the Government's Future of Financial Advice (FOFA) changes.
The loss of the presumption of innocence is made clear in a consultation paper issued on Friday, in which ASIC says it will be up to those receiving the volume-based rebates to prove they are not conflicted.
This places the treatment of volume-based rebates totally at odds with ASIC's approach to other forms of conflicted remuneration, where the presumption of innocence will apply and where it will be up to those alleging a breach to prove their case.
The consultation paper said that, generally, the party claiming that the conflicted remuneration provisions had been breached would "bear the onus of proving that benefit is conflicted remuneration".
However it said "where the presumption that volume-based benefits are conflicted remuneration applies, the onus is on the person who seeks a finding that the volume-based benefit is not conflicted remuneration to show this to be the case".
It acknowledged that this meant the authorised representative who received the benefit or their responsible licensee.
In detailing its approach to conflicted remuneration, ASIC said it proposed to "focus on the substance of a benefit over its form, and consider the overall circumstances in which the benefit is given".
However, while the ASIC consultation strongly precludes volume and platform rebates finding their way back to those providing advice, it does not preclude that money going to a dealer group and then being used for the upgrading of technology or similar actions.
It cited the example of a dealer group receiving a commission from a platform operator but not passing it on to advisers and instead using the benefit to pay for its operating expenses such as information technology.
The ASIC consultation paper said: "We are less likely to scrutinise the benefit in our administration of the conflicted remuneration provisions if the dealer group can show that:
- no portion of the benefit is passed on to a person that provides financial product advice to a retail client;
- the platforms and the products its advisers can recommend to clients are not selected based on the potential value of the benefit the dealer group receives from the platform operator or other product issuer. For example, they may be able to show this by demonstrating they have robust policies that are implemented and maintained in relation to platform and product selection;
- it does not promote any platform or other product to its individual advisers or clients; and
- it makes available a diverse range of platforms and has an extensive list of products its advisers can potentially recommend to clients."
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