The regulator’s guidance document on conflicted remuneration goes well beyond industry expectation and allows “very little wiggle room.”
Consultation Paper 189 Future of Financial Advice: Conflicted remuneration has emerged as definitive proof that the Australian Securities and Investments Commission (ASIC) means business and will look at both substance and form when considering potential conflicts.
Specifically, the consultation paper states:
In deciding whether a benefit is conflicted remuneration, we propose to focus on the substance of a benefit over its form, and consider the overall circumstances in which the benefit is given.
Spelled out
Lawyer Claire Wivell Plater, managing director of The Fold Legal, said the guidance was far more extensive than she had anticipated.
“It is now spelled out that anything that encourages a financial planner to recommend a product, rather than just stating the facts, will be considered conflicted,” she said.
“Anything that has the potential to influence is included… There is very little wiggle room.”
You’re avoiding me
Efforts by platform operators that provide a white-label or private-label platform arrangement to a licensed dealer group are also likely to fall foul of the guidelines.
A dealer group establishing a separate AFS licensee for the labelled platform arrangement to separate it from the dealer group is likely to be seen by the regulator as an avoidance scheme.
The guidance states:
This arrangement could reasonably be expected to influence the financial-product advice given to clients by the dealer group and its representatives,”
Such an arrangement is likely to be an avoidance scheme. In addition, if payments are made by the special-purpose licensee to its directors and shareholders, this may breach the conflicted remuneration provisions.
The guidance also makes it clear that the onus will be on the dealer group to show that the benefit is not conflicted remuneration.
The no-value-added exemption
However, ASIC is less likely to scrutinise the arrangement if the dealer group can show that no portion of the benefit is passed on to a person who provides financial product advice to a retail client, or the platforms and products its advisers can recommend to clients are not selected based on the potential value of the benefit the dealer group receives from the platform operator or other product issuer.
Transition arrangements are another area of potential controversy with grandfathering opportunities far more limited than first thought.
spot on Darren, and whilst ASIC fidiles the next Storm is brewing out there somewhere
ASIC has said that we are all presumed guilty unless we can demonstrate we are innocent. Cannot see how this gives us a fair chance.
ASIC’s Consultation Paper is the ‘best thing’ which can happen to protect clients from conflicted advice and over time, it is likely to improve the public image of financial planners. Now hope the term ‘financial planner’ becomes restricted under Corporation law so that the public knows who are real ‘financial planners’ as opposed to those only interested in selling products