Jury out on asset-based fees for 'independents'

Commentators are split on whether advisers legally permitted to use the term "independent" can adopt asset-based fees, in a sign of uncertainty regarding the Corporation Act's view of these models. 

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

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