Corporations Act definition of independence too restrictive
Philip Kewin
The AFA is not surprised that ASIC has received legal advice to support its position on a broader application of the ban on the use of the terms ‘independent’, ‘impartial’ and ‘unbiased’ advice.
“ASIC’s position reflects the tight restriction of the terms contained in Section 923A of the Corporations Act,” said AFA CEO, Philip Kewin.
“We support the view expressed on asset based fees, which correctly classifies asset based fees as a fee model, rather than a factor influencing independence. We also welcome the clarification with respect to APLs and the facilitative compliance period.”
However, the AFA’s view is that Section 923A of the legislation is unnecessarily restrictive as in practice there are very few licensees and financial advisers in Australia who would qualify under this strict definition.
“This is a very restrictive definition that includes a range of factors that in our view do not impact upon what we consider to be independence in the delivery of advice,” Mr Kewin said. “It is our view that the test of independence should be in the eyes of the consumer and not influenced by structural considerations that are included in the current legislation.”
Mr Kewin said the AFA believes that an authorised representative of a licensee that would have been considered ‘non-aligned’, with a broad APL (and a non-approved product process), can still be genuinely independent in their product selection even if they receive commissions for their life insurance advice.
“If, as is currently the case, every insurer offers commissions at a broadly similar level, which will shortly be restricted by the Life Insurance Framework, then how does the existence of commissions influence the independence of the selection of a product?” Mr Kewin said. “Equally, if a licensee receives volume bonuses, from a range of investment and superannuation product providers for existing pre-FoFA business, then how does this influence the independence of advice provided by the advisers to new clients? And, in many cases these volume bonus payments are not passed on to the advisers.”
Mr Kewin said the AFA believes it is important that clients understand who is independent, impartial and unbiased. “Many advisers have gone to great lengths to establish themselves and their businesses as ‘independent’ and ‘non-aligned’, often at great expense, yet only a few would now qualify under the current strict definition of “independent”. It is obvious that these words cannot be used in the institutionally-owned space, however we do believe that they should be available for more than the current legislation allows.”
The AFA would like to see legislative change to address this issue, to more appropriately restrict the use of these terms.
