In lieu of a structural separation of vertically integrated business models, ASIC’s latest action against superannuation fund HostPlus highlights the challenges these models will face in the new regulatory environment.
On Thursday the securities regulator fined HostPlus, the $33 billion super fund, $12,600 for alleged misleading claims it offered ‘independent’ advice via Industry Fund Services (IFS). IFS is an advice network HostPlus employees were appointed as authorised representatives to provide financial advice under IFS’ Australian financial services license and which HostPlus paid service fees to for adviser services, according to ASIC. HostPlus is also a shareholder of the ultimate holding company for IFS, ASIC highlights.
The ASIC Infringement Notice relates to alleged misleading claims about offering ‘independent advice’ in a recorded telephone message on HostPlus’s main consumer telephone number, from at least July 2016 to late March 2018.
Licensees and representatives of licensees aren’t legally allowed to use the word ‘independent’ to describe the services they offer under the Corporations Act if they receive any commissions or any form of remuneration on the basis of the volume of business placed the financial adviser or have associations or relationships with issuers of financial products that might reasonably be expected to influence the adviser.
Royal commissioner Kenneth Hayne’s final report recommends the law relating to disclosure of independence of financial advice become more stringent, requiring advisers who do not meet the ‘independent’ standard to give the client a written statement explaining simply and concisely why they are not independent, impartial and unbiased.
It’s this Hayne recommendation, and others among the 24 recommendations in the royal commission’s final report aimed at reducing conflict within the financial advice segment, that cast doubt over the future of vertically integrated businesses models. These models are prevalent not only within the the banks but also among industry super funds, as ASIC’s latest action highlights.
Hayne notes that the banks’ abandonment of owning advice points to the natural trend away from vertically integrated institutions, which allayed the need to mandate structural separation.
In response to ASIC’s concerns, HostPlus immediately removed the use of the word ‘independent’ from the recorded telephone message. The regulator also noted that the payment of the Infringement Notice by HostPlus is not an admission of a contravention of the ASIC Act.