It’s not yet clear whether some conflicted payments, including sponsorships for dealer group events that investment product providers grant to licensees, will be caught in commissioner Kenneth Hayne’s wide-ranging crackdown on conflicted remuneration.
While Hayne highlighted that certain non-monetary forms of conflicted remuneration should be abolished, the monetary benefits, which are prevalent in the financial services industry, could be expected to live on, one prominent financial service lawyer has said.
“It all comes down to six little words in the definition of ‘conflicted remuneration’ and a few paragraphs in RG 246 [ASIC guide] that left the door open for these types of payments to continue” after the Future of Financial Advice reforms, The Fold Legal senior associate Simon Carrodus said.
Those six words are “could reasonably be expected to influence”, and they relate to whether or not the benefits in question could be expected to influence the advice that representatives provide to clients.
The paragraphs, outlined in ASIC’s RG 246, have become known among licensees as the “opex exemption” since the implementation of FoFA legislation, Carrodus highlights.
“It’s interesting because it’s not an exemption at all,” he explains. “It relies on the licensee coming to a view that the benefit could not reasonably be expected to influence the advice given to a client.” He adds that the paragraphs could continue to hold weight even after Hayne’s recommendations relating to conflicted remuneration are considered and passed into law.
The opex so-called exemption came about following implementation of FoFA that ended or carved out commissions and volume bonuses paid by product providers.
The fact ASIC hasn’t defined opex in this context has left this area open to interpretation, Carrodus said. He added that opex payments could be stopped by a change in ASIC guidance that would not require legislation.
“Because ASIC hasn’t defined it, it’s impossible to know where to draw the line. I’ve heard stories about licensees wanting product providers to pay for their office’s rent, gas and electricity bills,” he says.
While Carrodus concedes that payment of office rent and electricity bills may be extreme examples, he notes that computer hardware, accounting or anti-viral software, Xplan subscription fees, marketing, IT and payroll services, and sponsorship at licensee conferences are common examples of opex payments.
Whether or not the opex exemption stays in place this year and beyond remains to be seen, despite the fact its existence appears to have escaped mention by Hayne in his final recommendations.
“If nothing else, I suggest that giving and receiving opex payments is flirting with danger in the current regulatory climate. It’s certainly not consistent with the themes and higher standards proposed by commissioner Hayne in his final report,” Carrodus says.