The ban on conflicted remuneration is part of the Future of Financial Advice (FOFA) reforms, and applies to both personal and general advice given to retail clients about any financial product, including managed investments, superannuation and platforms. The ban applies to commissions, volume-based payments, soft dollar benefits and volume-based shelf space fees.

Regulatory Guide 246 Conflicted remuneration (RG 246) covers:

• volume-based benefits
• performance benefits for employees
• volume-based shelf space fees
• asset based fees on borrowed amounts
• transitional provisions
• the anti avoidance provision.

As previously announced, our final guidance on performance benefits as part of employee remuneration focuses on the principles underlying when a performance benefit is more likely to be conflicted remuneration. This change was made following feedback on our draft guidance, which had included indicative thresholds as to when ASIC would be more likely to scrutinise such a benefit.

ASIC Commissioner Peter Kell said: ‘The key principle underlying the conflicted remuneration ban is to ensure the interests of advisers and retail clients are more closely aligned, improving the quality of advice provided.

‘Complying with this ban means payment structures used in some business models or delivery channels will need to change. We will continue to work with industry as they implement these changes.’

To read RG 246 Conflicted remuneration, click here.

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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.

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