Financial advisers who provide financial product advice (personal and general) are prohibited from paying or receiving conflicted remuneration. The ban means that AFS licensees and authorised representatives are not allowed to give or receive payments or non-monetary benefits, including commissions if the payment or benefit could reasonably be expected to influence the financial product advice provided or the choice of financial products recommended to clients.
- Commissions – upfront or trailing
- Volume-based benefits from a platform operator to an AFS licensee, or from an AFS licensee to an authorised representative (these are presumed to be conflicted)
- Some performance benefits paid to employees
- Charging asset-based fees on borrowed amounts used to acquire financial products
Compliance with the ban was mandatory from 1 July 2013 and, under grandfathering arrangements, conflicted and other banned remuneration provisions only applied to benefits given or accepted after 1 July 2013. On 1 January 2021, the Treasury Laws Amendment (Ending Grandfathered Conflicted Remuneration) Act 2019 ended grandfathering arrangements for conflicted remuneration. Any conflicted remuneration which would have been grandfathered beyond 1 January 2021 must be rebated to affected clients from that date.
The ban also applies to a range of non-monetary benefits, including:
- Business equipment or services that have been subsidised
- Hospitality-related benefits
- Shares or other interests given by a product issuer or AFS licensee
- Marketing assistance
- Promotion or other ways or recognising an employee based on product recommendations or sales.
Exemptions to the ban on conflicted remuneration are available in certain limited circumstances. These can include:
- Benefits given by the client
- Benefits with a value under $300
- Benefits that do not have an influence on the advice provided
- Salary of employees
- Benefits with a genuine educational or training purpose (in certain circumstances)
- Benefits given in relation to advice regarding a basic banking product, a general insurance or consumer credit insurance product
- Benefits in relation to an execution only service
- Certain technology software and support non-monetary benefits.
ASIC has made it clear that it will look to substance, rather than form, when determining a breach (so simply renaming a banned commission will not pass the test). The legislation includes anti-avoidance provisions to ensure that AFS licensees, product providers and authorised representatives do not attempt to enter into schemes designed to avoid the intent of the legislation.
Implications for Financial Advice Licensees
It’s worth noting that ASIC can and does conduct reviews of the advice provided to the clients of retail financial product advice providers and the circumstances surrounding the provision of advice, including remuneration paid or received by the adviser or licensee. Licensees should ensure they have adequately assessed their remuneration arrangements, including documenting any adviser performance benefits and how these are structured.
Where licensees form part of a group of companies that provide a variety of services to retail clients, close attention must be paid to the structure of the remuneration arrangements and whether such arrangements could reasonably be expected to influence the advice provided to the retail client. In Regulatory Guide 246, ASIC refers to the balanced scorecard approach and includes a variety of non-volume based criteria which could be included in evaluating an adviser’s performance benefit. Licensees should remember that if any part of the performance arrangement is volume based, this part is presumed to be conflicted remuneration under s963L of the Corporations Act.