The Australian Securities and Investments Commission’s (ASIC’s) RG 246 guidance on conflicted remuneration contains a client consent measure that goes beyond what is required under the relevant legislation, according to a financial services lawyer.
Under RG 246, released on March 4, if an asset-based fee is paid to the Australian Financial Services Licence (AFSL) holder, the licensee will now need the client’s clear and informed consent to pass on any portion of that to their corporate authorised representatives (CARs) and advisers.
Traditionally, when commissions are paid to a licensee by a platform or product provider, they are aggregated by the licensee then on-paid to the advice business or corporate authorised representative (CAR). From there, a portion is distributed to the individual authorised representatives depending on the specific arrangements under the contract.
The RG 246 guidance states that, “In our view, consent is ‘clear’ if it is genuine, express and specific. Mere knowledge of the benefit, or agreement to proceed with financial services in light of a disclosure about the benefit, is not clear consent,” the ASIC guidance states.
The Fold Legal’s managing director, Claire Wivell Plater, told InvestorDaily that there is nothing in the law or the original consultation paper that outlines the client consent measure.
“It’s interesting that it was put into the ASIC regulatory guide without consultation,” Ms Wivell Plater said.
The question was raised in discussions by Treasury earlier this week, although it is not yet clear what Treasury’s view is, she added.
Ms Wivell Plater said the procedure for fee distribution, which is a key part of how CARs pay their dealership fee, is likely to remain fairly similar but with the added administrative burden increasing costs to advice businesses.
“Many licensees will manage that on behalf of the CAR, or even if they do it themselves – which is less likely – they still need to manage what they keep themselves and what they pass on to employees if they are going to be remunerated in proportion of the fees they are bringing in,” she said.
“Or, if the fee is received by the CAR and then passed to the authorised representative, that’s OK but the client has to actively consent to that occurring. The client has to know what amount the AFS licensee is passing on to the CAR and what amount will be passed to the individual representative.”
Ms Wivell Plater said the measure is unnecessary: “That will impose a very significant administrative burden on licensees, which will add to costs,” she said.
Those costs are likely to be incurred at an individual advice practice level since it is they that will need to do the disclosure, according to Wivell Plater.
