ASIC: Trails equate to ongoing fees
While the Association of Financial Advisers (AFA) has argued that grandfathered trail commissions do not equate to ongoing service arrangements, the Australian Securities and Investments Commission (ASIC) has argued that they do.
ASIC has used its submission responding to the first-round financial advice hearings of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services industry to describe ongoing service fees as having “some similarities to commissions, in that they are recurring, are practically ‘invisible’ to the customer and may bear no relation to the work actually done”.
“In ASIC’s view, it is plausible that a continuing culture among licensees and advisers of receiving ongoing commissions which bear no direct relationship to the provision by them of service to the customer (a culture condoned to at least some extent by the grandfathering of commissions) may have contributed to those licensees and advisers paying insufficient regard to the need to charge ongoing service fees only where the service was provided,” the submission said.
On the question of whether the grandfathered arrangements should cease, ASIC said any exception to the ban on conflicted remuneration had the ability to create misaligned incentives which could lead to inappropriate advice.
Further, the regulator pointed out that it had always been opposed to the grandfathering arrangements under the Future of Financial Advice (FoFA) changes being allowed to continue in perpetuity.
It said that ASIC was concerned that almost five years after the implementation of the FoFA reforms, grandfathered commissions continued to form a significant proportion of licensee/adviser remuneration and that grandfathered commissions “operate to incentivise advisers to keep clients in legacy products with a continuing commission structure, even where there may be better products available to meet the client’s needs”.
Recommended for you
A financial advice firm has been penalised $11 million in the Federal Court for providing ‘cookie cutter advice’ to its clients and breaching conflicted remuneration rules.
Insignia Financial has experienced total quarterly net outflows of $1.8 billion as a result of client rebalancing, while its multi-asset flows halved from the prior quarter.
Prime Financial is looking to shed its “sleeping giant” reputation with larger M&A transactions going forward, having agreed to acquire research firm Lincoln Indicators.
An affiliate of Pinnacle Investment Management has expanded its reach with a London office as the fund manager seeks to grow its overseas distribution into the UK and Europe.
