ASIC's conflicted remuneration proposals inconsistent

financial advisers australian securities and investments commission ASIC financial advice fund manager investments commission

18 October 2012
| By Staff |
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A number of the Australian Securities and Investments Commission's (ASIC's) proposals for conflicted remuneration payments are claimed to be inconsistent with current financial services law and have little to do with the provision of financial advice.

According to King & Wood Mallesons partner Michelle Levy, 'Consultation Paper 189 Future of Financial Advice: Conflicted Remuneration' provides no legislative basis for the bundling of multiple benefits paid under a single arrangement and then judging them as a single benefit.

"In fact, to the contrary, the law requires the identification of each benefit," she said.

Some benefits may fall under some of the exemptions on conflicted remuneration, including payments that form part of commissions on risk insurance or those provided by a client, and therefore do not fall under ASIC's current conflicted remuneration definition, she said.

In addition, the paper provides no clear understanding of what constitutes an interrelated benefit.

The paper states that "a benefit is not conflicted remuneration if it is given by a client in relation to the issue of sale of a product or advice given by the adviser."

ASIC added that it would not take any action against a platform operator that accepts a volume-based shelf space fee if the fee is passed properly on to clients.

Levy said the ban is unrelated to the provision of advice and is unlikely to influence how platform operators select the products that are available.

"The ban is welcomed in a way, but can a platform operator or a fund manager making the payment rely on their view that if you rebate the fee to your clients, then they won't take action even though it is actually prohibited by law?" she said.

"Even if you rebate, you're nevertheless going to be caught by the volume-based fee provision because it's unrelated to advice and therefore the fact you rebate the fee is irrelevant."

The Fold Legal managing director Claire Wivell Plater said the regulator cannot give guidance on every potential contingency when it comes to conflicted benefits and it should not be expected to do so.

However, a potential conflict could arise from the grandfathering of platform rebates, she said.

Although it would in effect give a lot more time to independent dealer groups to alter their remuneration structure before 1 July, it might also stir a reluctance in advisers to move away from existing platform arrangements - because they would lose that revenue stream, Wivell Plater said.

"Is it in the client's best interest to keep the client in a grandfathered platform when there is a better platform available elsewhere?" she said.

"An adviser may not fail on the conflicted remuneration aspect of the consultation paper but they will fail on their fiduciary duty."

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