Conflicted remunerations – know where you stand

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As part of the FoFA reforms, any benefits given to a planner under arrangements entered into on, or after 1 July, will be subject to new conflicted remuneration provisions. Yesterday, ASIC released guidance on the provisions and how the ban will be administered.

ASIC has said that when deciding whether a benefit is conflicted remuneration, it will focus on “the substance of a benefit over its form” and consider the overall circumstances in which the benefit is given. This means rather than looking at how the benefit is labelled or presented, ASIC will consider whether the benefit could reasonably be expected to influence the advice or recommendations, as well as how an AFS licensee’s or representative’s business is structured, the type of financial product advice they provide and the types of products to which the advice relates.

If a planner breaches the provisions, this could result in:

  • A civil penalty, except where:
    • the AFS licensee provides the authorised representative with information about the nature of the benefit to be accepted by the authorised representative;
    • at the time the authorised representative accepts the benefit, it is not aware that the benefit is conflicted remuneration because the representative is acting in reliance on that information; and
    • the representative’s reliance on that information is reasonable
  • Administrative sanctions (e.g. banning order)

When a breach is believed to have taken place, responsibility will generally fall on the party claiming that there has been a breach, to prove it.

The guidance provides information on; volume-based benefits, performance benefits for employees, volume-based shelf space fees, asset-based fees on borrowed amounts, transitional provisions and the anti-avoidance provision. It also lists circumstances when a benefit will not be considered conflicted remuneration.

The following are examples of benefits that would be considered conflicted remuneration:

  • Commissions; whether upfront or trailing, fixed or variable; paid by a product issuer to a licensed dealer group, whether the payment is made directly or through some other arrangement;
  • Volume-based payments from a platform operator to a licensed dealer group;
  • Volume-based payments from a licensed dealer group to an authorised representative or other representative;
  • Volume-based bonuses and other payments, such as a commission or one-off payment, to a financial adviser, which is related to the number or value of financial products acquired by clients following the advice of the financial adviser. The payment could be made by:
    • the financial adviser’s dealer group;
    • a platform operator; or
    • a product issuer