In a communication to members on Tuesday, the Profession of Independent Financial Advisers (PIFA) said it had been “making representations to senators” about improvements to independence disclosure rules contained in the Financial Sector Reform (Hayne Royal Commission Response No 2) Bill 2020, which passed the House of Representatives last week.
PIFA president Daniel Brammall confirmed to ifa that the association had been liaising with cross-bench and Labor senators around the ability for advisers who charged asset-based fees to refer to themselves as independent under the new legislation.
“At the moment the legislation lacks any reference to asset fees – there are advisers charging asset fees who are calling themselves independent in spite of the obvious conflict they have, and this legislation should address that,” Mr Brammall said.
When passed, the legislation will require advisers to give a written disclosure of lack of independence to their clients if they do not meet the definition under section 923A of the Corporations Act.
Mr Brammall said recent ASIC interpretations of the law around conflicts and asset-based fees had created a grey area that the government had an opportunity to address with the current bill.
“In section 923A(2), it says advisers can’t call themselves independent if they charge a fee that’s calculated based on the volume of business placed with a product issuer,” he said.
“However when ASIC re-released RG 175 [in 2017] it inserted a new paragraph that said ‘we don’t consider asset-based fees are themselves a conflict, we’d need to look at the detail of the situation to see if it created a conflict’.
“Asset fees are a form of incentive because if you put more money in my pay goes up. Whether you choose to act on that incentive, it’s not impartiality.”
Mr Brammall said the bill, which is currently listed ninth on the Senate notice paper, was expected to be debated on Thursday and listed as “non-controversial legislation”, meaning its passage was not currently expected to be opposed.
However, a number of adviser bodies have been liaising with cross-bench senators around potential amendments to the bill, with the AIOFP also raising issues with the independence disclosure rules given they do not include payments received from property developers.
Additionally, the AFA has pointed to discrepancies between product providers and licensees’ fee systems that are not addressed in the annual renewals section of the bill and could lead to advisers inadvertently breaching FDS requirements.
Urghhh why bother having the word independent used at all at this point, just legislate it out of existence. I have taken some inspiration from a popular advert where when a group of people is asked “where is Eugene?” everyone shouts “I am Eugene!!”, so if we all shout it nobody will know who Eugene is!
Perhaps we can legislate that everyone not working for free must choose from different prescribed conflict categories. Adviser A the asset based adviser can be “product-volume conflicted”, Adviser B the flat fee adviser can disclose that they are not “product-volume conflicted” but are “conflicted for service orientation”, adviser C who charges hourly can disclose they are “time-conflicted” and so forth. Attach a bunch of standard warnings to each one I.e “due to my hourly fees I have a conflict of interest where I earn more money by recommending more time intensive strategies”and blah blah blah. So the adviser can Pick what conflict they are, disclose their conflict of choice to the client who doesn’t give a $&@*%# anyway, because it’s buried amongst the 500 pages of FSG, SOA, PDS, FDS, OSA they get plundered with against their wishes l, and then we can all move on from this ideological nonsense.
Love it.
I just don’t know why the FPA supported that definition of independence. Last year I contacted AMP who told me they would not turn off an insurance commission and so I parted ways with the client. Nice win for AMP.
It’s “non-controversial” because the Union Super funds & their Intrafund distribution sales teams want it through. The less competition for them the better, as far as they are concerned. It has very little to do with providing client advice. To ramp it through on Thursday means the ASIC submissions for Advice has been a complete joke.
Couldn’t we just turn up and help the client.
If you work as a self employed adviser, have NO business connection to any particular insurance company, bank or institution and deal freely in the market place, how can you not be classed as independent?
The fact that you are remunerated through the licensee or have an “agreement” makes no difference as you are arms length and the licensee does not dictate who you should place business with.
I would challenge anyone to explain or prove why you cannot be termed as “independent”.
We wonder why in times like this where we have a chance to change things that we cant. All these different bodies throw thier self interested 2 cents in, and our messages from on the ground never get through. All due to this fractured representation. No wonder the pollies just throw the hands up and listen to asic and choice and the professors.
This was my exact reaction upon reading through this. What a shambles.
You’re right it’s too fractured but that’s because the advice industry itself is made up of different parties for example, If you work in a Industry Super fund as an adviser than you’re a member of the FPA, and those advisers have there own interests to protect.
It is clear there are many areas which need further work; the Liberal government should not rush through half-arsed legislation.
Sick of hearing from this guy. An agreed fixed fee can be just as conflicted as an asset based fee. I have no preference for one over the other, but time to get off his high horse. He might also want to reconsider his own independence given his FSG states that if they pay referral fees these will be disclosed in the SOA. If was so pure wouldn’t his FSG say he doesn’t pay referral fees?
This Governments drafting of legislation across the board is appalling with lack of detail and understanding the common thread. They are so bloody minded to get things through and get a photo opportunity they rush and make the wording ambiguous.
So while the AFA is lobbying for important amendments to reduce the risk of inadvertent non-compliance with FDS rules, Brammal is running around Canberra trying to protect his little niche. We all know the independence tag is a joke. Most of my clients are on flat fees with no commissions, but because of a few legacy clients, who would be disadvantaged if I moved them to fees, I am forced to tell all of my clients, even new ones, that my advice is compromised. It’s a complete joke. I laugh about this with my clients. They know that I am independent anyway. Not because of the words I use, but because of the actions I take.
Sorry Daniel, but if you want to remove all conflicted revenue from the Corps Act definition of “independent” then you also need to remove fee for service. There is a clear incentive for advisers charging fees to provide services which are more complex and time consuming than necessary for the client’s requirements, in order to generate more fees for the adviser.
All professionals providing a commercial service receive conflicted revenue, regardless of payment method. These conflicts can only ever be managed. They cannot be avoided. This also applies to doctors, lawyers, and accountants.
Corps Act s923A should certainly be revised, but in a way that removes any reference to payment method. When consumers are seeking an independent adviser, they want someone who is not owned or controlled by a product company. That’s all. The Corps Act should be aligned with that consumer expectation. Payment methods are a different issue, unrelated to independence.
The worst aspect of the new legislation – and there is lots of competition for that title – is the 5 years in jail penalty for bad record keeping. Why not the death penalty?
This bill is one of the most consumer-damaging parliamentary bills in a long time. It will destroy the viability of licensees, make advice only available to the top end of the market and will be the coup de grace for insurance advice. FoFA really only showed the ugly consequences of its almost-impossible-to-get-it-absolutely right requirements some six years after implementation.
This legislation will be worse.
vertically integrated Indrustry Fund Advisers most likely don’t have to give written notice of their lack of independance even though they are captured and can only talk and recommend 1 (yes only 1) provider/product.
Idiotic ASIC!
Wow, PIFA wants to make life even harder for financial advisers by restricting further the definition of ‘independent’ even though it is already the most restrictive definition in the world. The restriction of the term ‘independent’ was originally bank driven so independent financial advisers could not publicly differentiate themselves from the banks’ commercial salesforces.
And here Daniel wants to do the dirty work for the banks even though the banks are leaving the industry.