In late June, ASIC issued a clarification explaining that advisers using the terms ‘independently-owned’, ‘non-aligned’ or others of “like import” will now need to meet the criteria set forth in section 923A of the Corporations Act.
Commenting on the clarification, Brett Walker, a former investigator with ASIC predecessor organisation the ASC and director of SMART Compliance, told ifa that ASIC is likely to take non-compliance with the new clarification seriously.
“Obviously ASIC has drawn a line in the sand,” Mr Walker said. “If you fail to comply with s923A there are potential consequences like EU, fines and even banning or loss of licence if ASIC wants to make a statement.
“I suspect most likely they would impose an EU on any AFSL that they felt breached s923A in first instance but if, for example, a defective disclosure document was issued – such as an SOA or FSG – based upon a breach of s923A, there are significant offence provisions.”
The former investigator said a knowingly defective disclosure document can carry a fine of $36,000 and potentially a five-year prison sentence, while a defective document without knowledge could still get you two years in jail or a $18,000 fine.
However, Sophie Gerber of Sophie Grace Compliance anticipates that ASIC would generally take a softer approach to breaches in the first instance, giving advisers or licensees an opportunity to explain their position once a breach has been identified.
“It would be very unlikely for ASIC to launch in with an accusation of a breach straight off the bat,” Ms Gerber said. “So that should give some level of comfort … If you feel nervous about receiving a question letter about this point don’t use the term.”
Meanwhile, in a letter to AIOFP executive director Peter Johnston, seen by ifa, barrister Arwed Turon advised that ASIC’s clarification is not yet set in stone and could be challenged in the courts.
“The approach now taken by ASIC, based on external legal advice, is not law: it is an interpretation adopted by it of the provisions of s923A,” Mr Turon wrote.
ifa will expand on the fallout from ASIC’s clarification in the August edition of ifa magazine.
[quote=Anonymous]Aside from your own ego, what benefit exactly? The quality of advice isn’t determined by a title, or an ethos around payment receipt.
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The benefit is how the consumer feels. Consumers want independence. I’m not talking about your current clients – they obviously don’t want it now, they have you. It’s about how we break through (as a profession) to get real respect from the community. The answer is independence.
Independence isn’t about our behavior, it’s about how consumers feel about us.
All this banter is about us. The bickering is futile. I haven’t seen an IFAAA members dancing with joy to the recent developments. The banks and product providers are the enemy. I take no joy in hearing that ASIC is cracking down on the use of the word; but seriously, is it really that hard to change?
Get your own AFSL and rebate commissions. It’s not that hard guys and girls. Make the change.
Financially and legally it may not be hard Matthew, but ethically it’s very hard. I really struggle ethically with telling a cash strapped middle income earner who desperately needs life & IP to protect his family, that he has no choice but to pay me an additional upfront fee amount, rather than have it funded over time via the commission system. At the moment I give those sort of clients a choice between fees and commissions, and explain the cost differences short and long term. 100% of them choose to pay by commission. If commission wasn’t an option, they would just DIY by purchasing a small amount of junk insurance from a TV ad or union fund. How is that outcome in the client’s best interest?
So let’s say it’s a $4,400 upfront fee. You offset this upfront fee with the commissions you receive until the $4,400 is reached which depending on the premiums, could be just 2-3 years. Then you rebate the rest. Client much better off over the long term. He/she is more cash strapped paying higher premiums not getting the rebate.
Ethical dilemma? I can’t see it. If you’re a risk only adviser, disregard all this. This is aimed at financial advisers (as this is a financial advising site) and providing risk only advice is a completely different ball game to which my views do not apply.
But s932a “independent” advisers aren’t allowed to accept any commissions in the first place. How does an “independent” adviser cover their upfront costs for insurance advice without slugging the client with an additional upfront fee on top of their slightly reduced insurance premiums?
I believe that some advisers might receive commissions and then rebate them straight back to the client.
We have clients who come to us with existing insurance policies which they retain. We are made the adviser. We receive the commission, then give it back to them. Accept and keep have different meanings…
That is a lot of work. to rebate sometimes a monthly trailing commission and then invoice the client. Is that all factored in? Secondly didn’t you just say you accept the commission until the client reaches the agreed fee for the work.
Our firm doesn’t write insurance with commissions, we charge a fee upfront, we explain they’re better off, they pay it, we don’t face the problems other advisers seem to face with this.
But those that do write the insurance with commissions I believe offset the commissions against the outstanding invoice. Once that invoice is paid, then you rebate it. Make sense McGlashen?
Rebating comms is a lot of work, which is why we don’t even write insurance with comms because it’s just creating additional work.
The logical consistency of your argument is quickly unravelling Matthew. Which suggests you are hypothesising about practical solutions for clients with cashflow constraints, without actually having to deal with those sort of clients on a day to day basis. Fee for service insurance advice, as mandated by the s923A definition of “independence”, is only realistic for clients with comfortable excess cashflow. For regular mums and dads s923A is not the moral high ground. It is contrary to their best interests and ethically objectionable.
Sure, I’m man enough to consider that could be possible.
But then again, all I hear are excuses. One after the other. It’s too hard. It’s too complicated. Clients won’t do it. It’s in clients best interest.
Clients are better off after three years cash-flow wise. That’s a fact. You continue to argue with this fact. But it is in their best interests to invest the money upfront and save longer term. Baffled that you aren’t able to show that to clients. But hey, keep playing the victim in all this, if it works for you.
Getting irritated because here I am putting my name to comments to help you, but you remain gutless and anonymous and throw insults at me because I have a different point of view.
I don’t think anyone is arguing with the fact that clients would be better off in the long run IF they had the spare cash to pay for the advice cost upfront. But many clients don’t. Client refusal to pay for upfront advice is not an “excuse”. It as an experience based fact. Ask any adviser who deals with cash strapped clients. IFAAA’s and CALR ‘s insistence that those clients should pay separate upfront fees for advice is like Marie Antoinette saying “let them eat cake”.
Everyone is cash-strapped like everyone is time poor.
Everyone has to prioritise what they spend money on. That’s part of the job of a financial adviser. To help clients PLAN through this.
They are better off by planning through it. We find ways to do it. I’m still hearing excuses.
Cake is full of butter. I don’t recommend it.
haha, go home ASIC, you’re drunk
What is really more important to a clients Best Interests. Knowing that the adviser they are seeing is not owned or affiliated with an institution, or protecting themselves from being unable to know what “Independently Owned” means and being unable to follow the disclosure mandated to be provided on how and from where their adviser is paid.
Sounds like this is just a sop to the Banks and the FPA who are only trying to preserve their own brands and profits.
I may be missing something here, however s923A is probably the future of the “advice” industry. The problem is “advice”, up to this point has been a marketing term.
so, this is not law and is causing a great deal of debate and scaremongering. We have had enough of this type of approach in our industry and it is not helpful. Any regulator must provide absolute clarity over any core legal issues. If it cannot, then it is the wrong regulator or the wrong leadership of the regulator. To put things out there and say this is our interpretation when many others see it differently, is indicating a policy-on-the-run view. One lawyer says this is the interpretation -based on what? We don’t have the question that was asked, only the answer. Were other lawyers also asked? Was any feedback from practitioners and more importantly, their clients sought? Given that it is all meant in the client best interests and their understanding of what might mean a bias in a term, surely they are the ones to ask. I do see that any practice or AFSL that is owned by a product provider should disclose this and certainly not make any contrary claim. A practice that is not owned by a product provider and neither is their AFSL, should be able to state that as it is fact. Maybe there is something else going on behind the scenes that is not disclosed.
Legislative law and common law
So until an adviser (or maybe a class action) is / are game enough to challenge ASIC’s interpretation then the courts decision on the Common Law is untested.
As a want to be barrister (like Rake) but in this life a financial adviser.
I’d love to see ASICs lawyers argue the point that an AFSL that has zero institutional ownership can’t tell the public clients that they are not owned or run by the Banks.
That would be a fanciful legal arguement from ASIC.
So IFAs who’s ready to have a fight ?
If you are asking the truly independent advisers to fight this, then no we are not going to. We are sick of advisers alluding to independence because they are “independently owned” or “non-aligned”. If you receive revenue from products then you are not independent and your advice is inherently conflicted irrespective of your ownership structure. I notice that the IFAAA not only supports ASIC but believes they didn’t go far enough. Stop pretending you are independent when really are not – simple as that.
Yawn. You think you’re independent because of the way or how you charge. That’s a worry. It’s pretty much AMP & the big four banks versus everyone else now. It’s time we put aside that point of few. Saying the guy with his own AFSL but getting a commission from an 80 year old in an account based pension with $30,000 or a $200 a year from an IP policy, is a bit like saying the Apache are more Indian than the Sioux. Let’s scalp each other to sort it out. I make less than 5% of my income from Commission now, have my own AFSL and try and do the best for my clients. But I’m finding it hard to compete with AMP & every day the dreaded AMP guy keeps knocking at my door. my research costs me $2,500, yet the AMP guy is charged $500. My software program is piece of crap because it’s built for 2,000 AMP advisers. First it’s me and next it will be you buddy.
Sorry but if you are struggling to compete against AMP you really need to look at your business model and if only 5% of your revenue is from product then get rid of it. The true independents are not going to side with the pseudo independents on this issue I’m afraid.
Hi Annon; luckily I’m actually not struggling against AMP, more frustration than anything. The reason is because in my neck of the woods all the other non-aligned firms either folded, merged, or retired around the FoFA years. So when people google me i’m the only non bank advice firm around. Now you can sit in Pitt Street and think all is pretty, but I’m telling you i’m the canary in the coal mine and at no point in my 20 year career have I seen the demise of independent advice so great as it is now. My Software example is a classic example. Why would Xplan, Midwinter,Coin, etc etc build a piece of software you actually use or need, when AMP is their biggest client and it’s built for AMP. It’s time we Indians fightback and stop squabbling over who is more Indian.
Well said all 12 advisers that are s923A compliant.
Maybe when that number grows significantly all the way up to 1% of the countries advisers you can say you represent a huge segment of the market. 😆
It’s actually 32 advisers and who said we represent a huge segment of the market. The fact that it’s such a small proportion of industry that can honestly claim to be non conflicted is a sad indictment on this industry broadly.
Aside from your own ego, what benefit exactly? The quality of advice isn’t determined by a title, or an ethos around payment receipt.
ASIC should be approaching this from the perspective of those AFSL’s who take inducements from product providers, as opposed to planners who offer payment options.
Where ethical firms are involved, who don’t take inducements (which are meant to be banned anyway under conflict of interest, but have somehow survived at AFSL level) offering various forms of payment options can definitely be in the best interests of different clients.
Anyone who says otherwise is blinded by their own rhetoric, and just as valid arguments could be put that they are acting in less than their clients’ best interests.
“Independence” in the strict s923A sense does not add profit nor reduce cost to a professional business, and does not improve quality of advice nor service levels for clients. All it does is allow a word on a shingle that provides that planner’s ego a warm inner glow (normally of blissful oblivious ignorance) and a smidgen of marketing kudos. And these are the guys who are afraid when others correctly call themselves ‘unaligned’ or ‘independently owned’ because they know the public really don’t care that much about their precious title.
Must run, I’m off to see my ‘Manager of Client Relations’ at the checkout while I get my shopping done…
Giving up a small amount of revenue from legacy products and cutting off the option of insurance commissions does not magically improve the quality of advice compared to the non-aligned adviser down the road. So don’t kid yourself mate. While you are drinking your own bath water and boring your prospective clients by bagging your competitors, the rest of us are focused on issues that are important to our clients and delivering great advice.
Wouldn’t it be AWESOME if ASIC stopped wasting their time on trying to prosecute businesses for use of quite accurate disclosures just because they believe it COULD be misleading and concentrated on cleaning the rogues out of the industry? There are bigger fish to fry, surely?