IFAAA president Daniel Brammall told ifa that his understanding of section 923A of the Corporations Act does not allow advisers who call themselves “independent” to charge their clients volume-based fees.
He points to a clause of the act which prohibits “independent” advisers from accepting “forms of remuneration calculated on the basis of the volume of business placed by the person with an issuer of a financial product”.
In his view, advisers who charge based on assets under management and place products on a wrap would fall into this prohibition.
“I know others have tried to suggest asset fees don’t get caught by that legislation but they absolutely do. They decide to test ASIC at their own peril,” he said.
However, this view is disputed by financial services lawyer Claire Wivell Plater, managing director of The Fold Legal.
Ms Wivell Plater believes nothing in the legislation would prevent an adviser using the term “independent” from charging asset- or volume-based fees, provided they meet all other criteria in section 923A.
“That’s totally fine. It doesn’t stop them calling themselves independent,” she said.
However, she warned asset-based fees may create potential conflicts of interest, raising questions about the adviser’s best interests duty.
Meanwhile, Minter Ellison partner Richard Batten suggested the legislation was unclear on this point but that asset-based fees could be treated differently under the “independent” framework than the rest of the Corporations Act.
“Certainly, there seems to be an inconsistency in what is permitted under the conflicted remuneration regime and what is permitted under the independence regime,” he said.
“I wouldn’t want to be definitive but I would say there is a risk there.”
Issues around remuneration models and legal independence will be a key topic of the ifa Business Strategy Day. Click here for more information.
Why not performance based? I see no conflict, no return on the investment no return to the fund manager or adviser.
Fee for service ok, no return no fee charged. Oh lets do what many governments have done, destroy the industry make it not profitable, get rid of the third party channels,
[quote name=”Gerard Wilkes FCA CFP GDipAppF”]I think fees based on time spent is the only fair way to go. I know that advisers who base their income on asset based fees will lose plenty but I see asset based fees as an unfair way to charge.
If a client has say $5 mill invested and it takes say 10 hours a year to review and another has $2 mill which takes the same time, why should the $5 mill client pay 250% more than the smaller client.
It is an interesting discussion which requires fast action.
Let’s hope the FP industry can move a step forward to become a profession[/quote]
Its obvious you don’t have any mums and dads on your books with $20,000.00 and on the dole.
A percentage based fee is just that, an agreed fee between two parties. In fact a lot of people would say that it aligns the client interest directly to the advisor interest as the advisor will always want to do better for the client when his fees depend on it. A flat fee being charged to a client would show an advisor doing well when the clients financial situation is going south due to market performance or poor investment strategy.
Its time to get to the heart of the matter which is making a positive difference to a clients life outcomes.
If an adviser satisfies all other independence criteria including:
– independent business ownership
– no in-house products
– no equity in the management of any products recommended
– no volume bonuses, shelf space fees or conflicted remuneration,
and they charge exactly the same percentage rate of ongoing fee on all products recommended;
then it would be very hard to argue that they are not independent.
Could a representative from ASIC please stand up and simply give us a comment.
Does ASIC view % based fees as a contravention of the Act?
I realise debating is fun for some, I look at this as a no brainer myself – its clearly a conflict and impedes independence.
Go and see 10 lawyers and you will get 10 different opinions . Just like economists, they will charge you a bucket load to be wrong 11 times out of 10. There is no specifc mention in the legislation of FUA which ties up with the word independent . The legal profesion should give it a spell when commenting on financial services or otherwhise the financial planning industry might have to push back and put their profession under the microscope .
that will put the wind up the FUM based advisers who hide behind this cloke of so called “independent advice ” to recommend their own stock selections or products.