Commissions live within MISs post-FOFA
Commissions and other incentives have sat at the heart of advice issues associated with agricultural Managed Investments Schemes and some commission-based arrangements are likely to continue notwithstanding the implementation of the Future of Financial Advice (FOFA) changes, according to the Australian Securities and Investments Commission (ASIC).
The regulator has expressed its concerns in a submission to the Senate inquiry into Forestry Managed Investment Schemes in which it argues that while the FOFA changes have effectively banned commissions with respect to new client/adviser relationships "advisers will continue to be paid any commissions that fall outside the scope of this ban".
The ASIC submission said that forestry schemes have been historically distributed through the responsible entities of the schemes through their own authorised representatives (which may include accountants and employees of the responsible entity), financial advisers acting under their own AFS licence or as representatives of an AFS licensee and accountants acting under their own AFS licence or as representatives of an AFS licensee.
"We have long been concerned about the quality of financial advice provided to consumers and about conflicts of interests in the financial advice industry," the submission said. "This is reflected in a number of our reports and submissions to Government."
"Where advice is poor, one of the common problems is a conflicted remuneration structure (e.g. product commissions and percentage asset-based fees) affecting the type of advice, recommendations and the quality of advice."
"As outlined in our submission to the PJC inquiry into agribusiness managed investment schemes, the remuneration structures employed in the sale of agribusiness schemes (including forestry schemes) resulted in significant conflicts," the submission said.
"A typical feature of remuneration to distributors of these schemes was the payment of commissions. Commissions were usually based on a fixed per centage of the amount invested. The average commission rate payable to distributors of agribusiness schemes was about 10 per cent of the amount invested."
The submission said that distributors of agribusiness schemes might also have received remuneration in the form of overrides (bonuses) in addition to the commissions paid with the override payment generally determined by a specific factor that might be included in the overall volume of sales or the maturity of the relationship between the responsible entity and the distributor.
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