Licensees and financial planning practices should be considering a formal response to the regulator’s consultation paper on conflicted remuneration before the November 9 deadline.
While the Australian Securities and Investments Commission (ASIC) document contains many examples and extensive detail, some members of the legal fraternity have questioned its “very limited guidance” on how ASIC will administer conflicted remuneration.
“It does not contain a draft regulatory guide,” says Richard Batten, a partner with Minter Ellison Lawyers.
“While the paper does contain a few very useful observations, it is primarily designed to seek submissions on what guidance ASIC should provide.”
Open to interpretation
This is of limited use to an industry that needs to finalise remuneration models to ensure they comply with Future of Financial Advice (FoFA) legislation by July 1, 2013.
Batten questions why the consultation paper was not released earlier.
“It is good to see the process started as this is the most critical area for the regulator to provide guidance,” he told Professional Planner Online.
“I’m just not sure why this couldn’t have come out earlier – perhaps at the end of June.”
As things stand, feedback via submission to CP 189 is due by November 9, with the prospect of an updated guidance and draft regulatory guide being released by year’s end or early 2013, and a final regulatory guide not due until February next year.
“The continuing uncertainty regarding the conflicted remuneration provisions is significantly reducing the value of the one-year extension to the commencement of the FoFA regime,” says Batten.
“This is an important area to get right but we still don’t know where ASIC will be flexible and where it will take a conservative view.”
Narrow-gauge surprise
Some in the industry have also been irked by the proliferation of examples in the consultation paper, with one source telling Professional Planner Online that these are far too simplistic.
“Half way through the example, you are in what seems to be an interesting grey area but by the end it is obviously conflicted remuneration and you are left with more questions than answers,” he complained.
Astrid Raetze, a partner at Baker & McKenzie, said the consultation paper was largely as expected but she identified a few surprises.
In particular, Raetze takes issue with a central assumption made by the regulator: In addition to more closely aligning the interests of clients with the interests of those who provide them with financial product advice, we expect that the conflicted remuneration provisions will lead to an improvement in the quality of financial advice that retail clients receive.
She asserts that this may well be correct, but questions the long-term improvement in the quality of financial advice if it leads to advisers narrowing the range of services they offer or recommending only basic portfolios or products to clients.
Raetze says the finer points of the consultation paper will in particular need to be scrutinised by vertically integrated dealer groups.
