Did ASIC spell the end of asset-based fees?
The new guidance on best interests duty implies asset-based fees are just as conflicted as commissions, according to The Fold managing director Claire Wivell Plater.
Wivell Plater said advisers might have to rethink how they charge for advice, because the problem with asset-based fees was that they incentivised advisers to recommend strategies and products that maximised the assets they managed for the client.
She referred to the Conflicts Priority Rule contained in the Australian Securities and Investments Commission's newly released guidance on best interests (RG 175).
"The new Conflicts Priority Rule means that advisers cannot recommend strategies or products that create extra revenue for themselves or their licensees unless they can demonstrate additional benefit for the client," Wivell Plater said.
She likened the rule to the Government's current anti-smoking campaign.
"Smoking is not actually banned, but federal and new state legislation make it difficult to smoke anywhere."
This, she said, would result in some advisers rethinking how they charge for advice and moving away from 100 per cent asset-based fee structures.
"Setting up an engagement process is key to complying with the new law," Wivell Plater said.
"Advisers need to understand how to define the terms of engagement from the moment they first meet with a client. If the service proposition and the client's fee commitment are clear from the minute the client walks in the door, the financial aspects of client relationships become easier to manage."
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