Planner group accuses ASIC of outdated view on conflicts of interest

The Australian Securities and Investments Commission (ASIC) has an outdated view of what represent conflicts of interest which must be corrected if the new post-Royal Commission advice regime is to work, according to the Profession of Independent Financial Advisers (PIFA).

The organisation’s president, Canberra-based planner, Daniel Brammall, said there was a risk of consumers being misled if the situation was not corrected and proposed legislation went ahead as drafted.

The PIFA submission responding to Treasury’s Adviser Independence Disclosure legislation, argues that the draft legislation is not what the Royal Commission recommended or intended around adviser independence and conflicts of interest.

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The submission argues that key disclosures around independence and conflicts of interest are being hidden in the fine print of the legislation has warned of the risk that consumers will be misled if proposed legislation goes ahead as drafted.

"But an even bigger problem is ASIC’s outdated view on conflicts of interest [which] means consumers will be misled by the disclosure," the PIFA submission said. “Independence disclosure must not be hidden in the fine print.”

Brammall pointed out that the Royal Commissioner, Ken Hayne had stated that an adviser who does not meet the test of independence "should be required to bring that fact to the client’s attention, and to explain, prominently, clearly and concisely, why that is so."

“However the drafted legislation proposes to insert the disclosure into an existing, already lengthy document, the Financial Services Guide,” he said.

“We already know from the research published by the Royal Commission that disclosure may not be a very effective tool in overcoming conflicts of interest. So, burying this important fact about an adviser in an already ineffective disclosure document is not only pointless, it’s the complete opposite of what the Royal Commission recommended.

“The test of independence requires, among other things, that an adviser not be conflicted, particularly where remuneration is concerned. A common form of adviser remuneration is to charge a fee which is a proportion of the volume of funds invested, known as an ‘asset fee’. Whereas the conflicted nature of asset fees is recognised variously throughout the legislation, ASIC’s stated interpretation of the independence law doesn’t reflect that.”

The PIFA submission said financial services legislation recognised the conflicted nature of asset fees by calling them "conflicted remuneration" and banning them – “except to the extent that an industry-negotiated exclusion softened the ban. The result was asset fees were permissible where they were not derived from borrowed capital. Although removing the borrowings removes the ban, it does not remove the conflict”.

"PIFA is concerned that advisers who charge in this conflicted way will, under ASIC’s outdated interpretation, be able to call themselves independent," Brammall said. "For those advisers declaring themselves independent is very misleading to consumers."


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If there is one issue that Treasury should pretty much ignore, this is it. How much a client chooses to pay their adviser is simply up to them.

Speaking of conflicted, what a self serving piece of rubbish. Brammel is selling an 'independence' course and wants to enlist as many gullible planners as possible. No mentoin of this conflict David?

This is all such a non-issue I don't know why it even rates a mention. No client could care less whether or not you call yourself independent. I can't call myself independent because I receive insurance commissions - so what? If I have to stick a paragraph in my FSG or on my website or wherever saying that I'm not independent because I give my clients the option to pay for insurance advice by fee or commission, I'll happily do that and never lose one client because of it.

Agreed Brett H...I would go one step further and prominently display that the only reason I cannot call myself Independant is because I give my clients the choice to pay for my insurance advice services via a commission which is a competitive advantage to the PIFA advisers. I wonder if I will be able to say that the investment advice I provide is Independant but the Insurance advice is not because I will only get paid if I actually provide an insurance outcome for my clients if they choose to pay my fees via a commission. I doubt that I will be able to...but it is true.

where does the legislation refer to asset based ADVICE fees being banned or a conflict? Volume based and gearing yes, but as far as I can tell nothing on advice fees. Perhaps trying an interpretation to suit an argument - a behavioural bias?

Clients invest with people they like, people they trust. They dont look for the IFAA logo then walk out if there isnt one. Out of my whole client base I have never had questions about my independence. This us and them stuff is just more time wasting. Charge a flat fee , fine, charge a asset based one, fine too. We need to get out of each others pockets and get on with life and work. People should stop trying to get business by ratting others out, this is why the whole industry is so fragmented, people are belittling others all the time, white ants are everywhere in this industry. Operate how you want, call yourself independent, call yourself macdonalds for all I care, but don't throw shade on the rest of us for your own benefit, its not a good trait to have, and ill tell you what clients don't like it either! .

The underlying problem with the "independence" issue, is the definition in the Corps Act. That definition should be all about who CONTROLS the adviser. Not about their PAYMENT METHOD. Unfortunately the current Corps Act definition conflates these issues. It misleads consumers, and gives some unreputable advisers a means to exploit them.

When consumers seek out an "independent" adviser, they are seeking one that is not owned or controlled by a product company. Whether the adviser is paid by fee for service, commissions, asset based fees or a mixture of these, is a separate issue unrelated to independence. Some people argue that commissions and asset based fees provide incentive to recommend more product than necessary. That's true, but the same can be said for fee for service.

Far too many consumers are recommended solutions that are unnecessarily complex, and inefficiently administered using clunky inhouse systems, to generate excessive "fee for service" revenue for advisers promoting themselves as "independent". SMSFs are the classic example where this frequently occurs, but there are many others. Issues of overservicing and overcharging by any payment method should be dealt with through BID and the FASEA Code. Not by a misleading definition of "independence" which arbitrarily distinguishes between payment methods.

s923A needs to be amended to define "independence" purely in term of control issues, and get rid of references to payment method. It needs to be properly aligned to consumers' understanding and requirements in order to better serve consumers.

Charging a flat fee based (presumably) on time is also a conflict. Why spend 30 mins on a job for a client if you can take 90 mins and charge for it. Is the advice in the clients best interest and is the charge, however paid, reasonable for the service you are providing. That is the only test. The rest is a waste

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