Where fees go is of no concern to clients

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Part of ASIC’s guidance on conflicted remuneration has been taken a step too far, particularly when it comes to disclosing fees that licensees pay to advisers, says one industry expert.

Traditionally, commissions have been paid through the licensee – who distributes it to the corporate authorized representative (CAR), who then gives it to advisers.

Claire Wivell Plater, managing director of The Fold, says: “Under the new guidance, if an asset-based fee is paid to the AFS licensee, the licensee will now need the client’s clear and informed consent to pass on any portion of that to their corporate authorised representatives and advisers.

“That will impose a very significant administrative burden on licensees which will add to costs. I think it is unnecessary.”

She says the adviser and CAR will have to set up an arrangement with the client, at the time of entering into the fee arrangement because the client has to consent in advance. Any unexpected fees that arise that might have to be distributed could be covered by a blanket agreement that states the percentage each party will always receive.

“I don’t see why, for an independent licensee, the commercial arrangements between the CAR and the licensee – or the employment arrangements with advisers – are the client’s business.  It’s akin to being asked to disclose to clients how a business funds its expenses or what it pays its employees. These matters are really none of the client’s business.”

She says that if an adviser is remunerated based on selling an in-house product, then it’s probably more likely to be relevant information to the client, because it could indicate to them what level of intention the adviser has to recommend that product. “But even in that situation there are other requirements – the best interests duty and conflicted remuneration obligations.”

She said advisers’ remuneration shouldn’t change depending on their recommendations anyway, because that would be a breach of multiple aspects of the conflicted remuneration requirements.

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