Adviser warning: Rethink asset-based fees

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Asset-based fees may create just as much conflict of interest as commissions, says a law adviser to financial services firms.

The Fold managing director Claire Wivell Plater, said asset-based fees would create incentives for advisers to recommend strategies that maximise the assets the manage for the client.

“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,” she said.

Although the government is not banning asset-based fees, Plater said they were making it increasingly inappropriate to charge them. She predicted a fee structure based on the work done by an adviser, rather than 100% asset based.

Plater compared the rule to the government’s new anti-smoking legislation in NSW that bans smoking in places like transport stops and entrances to NSW public buildings.

“It’s similar to the legislation surrounding asset-based fees. Advisers aren’t specifically banned from charging them – but if they do, they risk either falling foul of the Conflicts Priority Rule or not being adequately remunerated for their work.”

She said advisers needed 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.”