ASIC needs to clarify commissions treated as ongoing fee 'consent': AFA

The use of the word “consent” in the corporate regulator’s guidance on commissions considered as ongoing fees is confusing and more clarity is needed, according to the Association of Financial Advisers (AFA).

Speaking to Money Management, AFA chief executive, Phil Anderson said while he thought the Australian Securities and Investments Commission (ASIC) did “a good job” with the guidance, it needed to provide more clarity on its definition of an ongoing fee.

Anderson pointed to question three of ASIC’s FAQ guidance on ongoing fee arrangements which said: “An ‘ongoing fee’ is any fee (however described or structured) that is paid under the terms of an ongoing fee arrangement between the fee recipient and the client: see section 962B.

Related News:

“If a third party pays the fee recipient a fee (e.g. commissions), this will generally not be an ongoing fee, where it is paid under a commercial arrangement between a product issuer or platform operator and a fee recipient.

“However, commissions may also be considered ongoing fees if they are paid with the clear consent, or at the direction, of the client.”

Anderson said the word “consent” was likely to confuse advisers as clients already needed to provide consent to the payment of commissions on life insurance products through the Statement of Advice (SoA) and signing the Authority to Proceed. 

“Aren’t they already providing consent? I think it’s talking about a higher level of confirmation from the client than a routine fact in the SoA, and they are agreeing to the SoA. Nonetheless the risk is that it causes confusion and uncertainty,” Anderson said.

“I think that this is intended to refer to a situation where there is a dial up commission, rather than a standard life insurance commission.

“It’s the use of the term ‘consent’ so obviously you need to be very careful about how you are treating those life insurance commissions and you’re not putting yourself in that position where someone could argue that point. That’s something we’d like to get more clarity on from ASIC.”

Anderson warned that the regime that would come into force on 1 July and advisers needed to pay attention to it and plan for it.

“Advisers need to get on top of the detail of what is required. They need to understand how the transition period works, the requirements about the 12 months, and the fact that the day they issue the fee disclosure statements (FDS) becomes it becomes the anniversary day going forward,” he said.

“They need to have a very clear plan on how to approach this. You’ve got flexibility in choosing when to provide the FDS from the transition year but you need to be making those decisions in advance.

“They need to understand what they need to do and have a clear plan to do it.”




Recommended for you

Author

Comments

Comments

So renewal commission could be determined to be part of an OFA, but to date there would be virtually no advisers who put these on FDS - because that's not how the guidance was originally given - no probs only 250K per breach.

This is typical from ASIC. They are pissed off that their agenda of banning life insurance commissions is running out of steam, so they deliberately muddy the waters and use sneaky tactics to put advisers at risk. Meanwhile, they are blind to the implosion of the life insurance industry and the harm caused to consumers who can no longer access advice in this area

We wont write insurance. We scope it out, warn the client and tell them to get it somewhere else. Who needs the aggravation? Well done ASIC, Hume O'dwyer.

Good bye Liberal Party....my vote is cast....you can't do any more damage to me, so you are voted out.
And yes Labor won't be great but what is left to take off us????

There are many years that I thought how could our occupation get worse, but it did... Just watch to see how Labor can make it worse. :P

What a dogs breakfast! only 10 working days left until it comes in and these morons cant even issue straightforward guidance so everyone knows what they are doing. Typical of ASIC and the Liberal party - shoot from the hip, ask questions later.

It seems the AFA are seeking an answer to stuff that just isn’t quantifiable. The 10 month / 2 month thing was an extreme example, I mean good on them for trying to do something but the horse has bolted. And no, given that risk comms are excluded from FDS’s you can safely assume it’s fine to receive. It’s not a fee that a client pays directly to you. The intent of the law is to stop lack of disclosure, sitting on fee for service and treating it like trail comms and not servicing your client base. Do those, and hopefully we are halfway there.

A standard commission is not an ongoing fee (OFA), as the commission is based on annual premiums. It's more like a NON-ongoing fee (NOFA). For example, if the client's insurance premium lapses early, there is a full write back. That is not a “fee”, that is a commission. If the premiums cease, there is no ongoing fee. I can’t see this going anywhere particularly. Under the new Hayne2/ASIC regime, it is important to consider NOFAs, rather than OFAs. Two totally different animals now. Don't mix them up.

"Logical and ASIC" will never appear in a sentence or paragraph or book for that matter, together.
Like a pack of hyena's with Scar as their leader (The Lion King).
Pragmatic, sensible, commercially-aware, they are not and continue to be a pathetic excuse for whatever they are meant to be.....calling it a "joke" is an insult to humour.

Add new comment