The Fold Legal's Jaime Lumsden

Referral fees for advisers are still under a cloud after FASEA released its preliminary response to submissions received as part of its industry consultations late last year.

The document, which largely flew under the radar when it was released on December 20, attempts to clarify rules around referral fees by making a distinction between advisers, who the Code of Ethics applies to, and both their licensees and Corporate Authorised Representatives (CARs), which it does not.

In essence, FASEA explain that referral fees can be paid to licensees and CARs but not directly to the adviser.

FASEA acknowledge that there is scope for referral remuneration to be funnelled through from either of these entities to the adviser, but only if all other elements of the code are satisfied.

“Where the adviser’s remuneration is related to the referral fee received via the Licensee structure or CAR and is paid directly to the adviser, the adviser will need to demonstrate compliance with the Code in the same manner as any other form of remuneration received,” the document states.

In an instructional video for education provider Kaplan, BT Financial Group’s Bryan Ashenden says his understanding is that referral payments can be paid to advisers via the licensee or CAR.

“The important thing it says is that referral fees are not necessarily banned,” Ashenden says. “You need to look at the way it’s been paid, who it’s been paid to, and whether it influences the advice.”

Ashleigh Swayn from Absolute Advice believes if the payment goes through the corporate entity and satisfies the other standards it seems permissible.

“Our take when it first came out was that [referral fees] are off limits, but when we started reading it we thought ‘hang on, the licensee can receive them and so can the corporate entity’.”

Swayn notes, however, that the practice will need to rely on the input of compliance specialists. “We’re still trying to get our head around it,” he says.

Getting an understanding from compliance experts can be problematic, according to David Page, managing director of mid-sized firm Financial Affairs in south-west Victoria. Page says they rely on information from both a compliance firm in Adelaide as well as their licensee. “Even with those two there’s conflicting information about this,” he says.

The Financial Adviser Standards and Ethics Authority has followed the lead of other regulators and indicated they will give advisers some room to understand and implement any changes – at least while there is no code monitoring body to police adherence and the role sits with licensees.

“FASEA considers the approach outlined by ASIC and AFCA while the single disciplinary body is being brought into operation is appropriate and will allow implementation to occur in a considered and consultative manner,” the submission states.

“FASEA suggests that advisers may wish to use this period to step back and assess how they stand against the Code Values and Standards.”