Updated guidance on conflicted remuneration and other banned benefits

By Michelle Levy
Corporate Governance Financial Services Insurance Risk & Compliance

In brief

Earlier today, ASIC released an updated version of Regulatory Guide 246, concerning conflicted remuneration and other banned benefits such as volume-based shelf-space fees. The changes are largely to address the life insurance remuneration reforms, which take effect on 1 January 2018. But there are other changes too, some of them reasonably significant. Partner Michelle Levy and Senior Regulatory Counsel Michael Mathieson report.

Benefits given by the client

ASIC has previously taken a narrow view of when the exception to conflicted remuneration for benefits given by the client can apply. In the updated guide, it has further narrowed its earlier view. According to ASIC, not only must the client's consent be 'genuine, express and specific', the benefit given must be funded from the client's own funds. ASIC says the exception cannot apply where the benefit is funded from, for example, a responsible entity's fee or a margin lender's interest charge. ASIC says its view finds a basis in an EM to a Bill that introduced some changes to FoFA in 2016. This compares with the concept of 'client consent' finding its basis in an EM to the Bill that introduced FoFA in 2012. So competing arguments concerning the true width of the exception are based on two different EMs issued four years apart – hardly a satisfactory situation for industry participants.

Other changes unrelated to life insurance

ASIC says that platforms are financial products and therefore provisions relating to advice apply when giving advice about platforms. It is hard to believe that anyone ever argued the contrary view. ASIC also says:

  • product neutral benefits may be conflicted remuneration;
  • the 'generosity' of a benefit is relevant to whether it could be expected to influence advice; and
  • recommending an investment in property through an SMSF is financial product advice.

Life insurance

Those who have been grappling with the life insurance remuneration reforms will find little to assist them in the updated guide. This is not to say the updated guide does not contain material new sections concerning those reforms. Rather, they do very little other than paraphrase the law.

The clawback rules, in particular, are a quagmire into which you would think twice about pushing your worst enemy. While there is a section in the guide dealing with those rules, it does not shed any light on the rules beyond the light shed by reading the rules and the explanatory statement. Unfortunately, the only chance you have of understanding how the rules apply in practice is to put yourself in a quiet room for a few days, and read and think, and then repeat the process many times.