As part of ASIC’s commitment to consulting on the Future of Financial Advice (FOFA) reforms, we have today released proposed guidance on the conflicted remuneration ban.

Consultation Paper 189 Future of Financial Advice: Conflicted remuneration (CP 189) sets out proposals for guidance about complying with the conflicted remuneration provisions.

The ban on conflicted remuneration includes commissions and volume-based payments in relation to the distribution of and advice about retail investment products. Such products include managed investments, superannuation, platforms and margin loans. There is also a ban on asset-based fees for borrowed amounts.

The ban on conflicted remuneration operates alongside other FOFA reforms including an obligation for advisers to act in the best interests of clients and a requirement for clients to opt-in to renew ongoing fee agreements. The FOFA reforms are intended to better align the interests of financial advisers and their retail clients, and improve the quality of financial advice retail clients receive.

ASIC Commissioner, Peter Kell, said, ‘The ban on conflicted remuneration is a core element of the FOFA reforms so it’s important we get industry feedback on these proposals.

‘The purpose of this guidance is to help industry understand the practical operation of these provisions and how ASIC will administer them. In particular, we will focus on the substance of the payment or benefit rather than what it is called – renaming a banned commission something else won’t change its substance. ‘ASIC wants to work through the FOFA changes in a way that helps industry comply, so we encourage feedback on our proposed approach’, Mr Kell said.

Submissions to CP 189 close on 9 November 2012.

Background

The conflicted remuneration provisions are set out in Divisions 4 and 5 of Part 7.7A of the Corporations Act 2001 and commence on 1 July 2013. Australian financial services licensees can choose to comply with these provisions and other FOFA reforms earlier. If they do so, they must register with ASIC.

Further information on ASIC’s implementation of the FOFA reforms, including our proposed guidance on the best interests duty and providing scalable advice, is available on ASIC’s FOFA webpage.

Download:

Consultation Paper 189 Future of Financial Advice: Conflicted remuneration (CP 189)