ASIC asset-based fees stance disappointing


By Daniel Paperny

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While further clarification on what constituted an ‘independently owned’ advice business was a welcome step by ASIC, the corporate regulator’s position on asset-based fees for advisers was questionable, according to the Independent Financial Advisers Association of Australia (IFAAA).

The regulator last week released a statement that sought to clarify the use of restricted terms relating to the independence of financial advisers, including 'independently owned' and 'non-aligned'.

IFAAA president Daniel Brammall argued that while ASIC’s announcement was important for addressing the industry-wide misuse of the term ‘independent’, the corporate watchdog’s failure to adequately account for those that received asset-based fees and the inherent risks of conflicts of interest that could arise from such an arrangement was an important oversight.

“[The announcement] is a step in the right direction for the Australian public … [and] we are delighted that the ASIC has provided clarity on the use of the term ‘independently-owned’ as we have felt, for some time now, financial planners who aren’t independent but promote themselves in this way is potentially misleading,” Brammall said.

“ASIC’s stance on asset-based fees, however, is disappointing.

“Our view, which is also supported by legal advice, has always been that asset fees are incentives and incentives are a conflict of interest.”

The comments follow ASIC’s statement last week on the “restricted words and expressions” that advisers were permitted to use under the law if they did not receive commissions, volume-based payments, or other gifts or benefits to avoid any conflicts of interest.

According to the regulator, financial service providers that received asset-based fees were not prevented from using restricted terms such as 'independent', since the fee structure was "not captured" by section 923A of the Corporations Act.

As a result, asset-based fees were “not captured” by section 923A, it said.

“Our position is that asset-based fees are not considered forms of remuneration calculated on the basis of the volume of business placed by the person with the issuer of a financial product,” it said in a statement.

“Asset-based fees are defined in section 964F of the [Corporations] Act [2001] as a fee for providing financial product advice to a person as a retail client to the extent that it is dependent upon the amount of funds used or to be used to acquire financial products by or on behalf of that person.”

Brammall said the IFAAA had been involved in direct discussions with ASIC about the misuse of the term ‘independent’, with the industry association now looking to explore options in the months ahead to expand its membership base in light of the regulator’s announcement.

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