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ASIC to consider whether asset-based fees are conflicted

The corporate regulator will seek external legal advice to determine whether advisers who charge their clients asset-based fees can be considered independent.

Speaking at the AIOFP conference in the Gold Coast yesterday, ASIC senior executive leader, financial advisers, Joanna Bird said her team has been taking a closer look at the Section 923A of the Corporations Act, which protects the terms ‘independent’, ‘impartial’ and ‘unbiased’.

Advisers are prohibited from using these words unless they reject commissions and gifts from product providers and operate without any conflicts of interest.

ASIC, however, is considering adding asset-based fees into that mix.

“We haven't treated asset-based fees as the same as commissions. That is one particular issue in addition that we are getting external legal advice on,” Ms Bird said.

“We're getting legal advice on what exactly the [923a] provision means so that we can provide clear and comprehensive guidance to the industry on what they can and can't do.”

However, not everyone agrees that asset-based fees are potentially conflicted.


AIOFP executive director Peter Johnston said while this remuneration model is not suitable for all clients, it can help align the interests of clients and advisers.

“If you have a very conservative client who has a very conservative portfolio, then it’s not appropriate. But if you have someone who wants a more actively-managed portfolio, then it’s great,” he told ifa.

“We cannot see where the conflict is.

“I think there is just general confusion in the marketplace between commissions and charging clients a percentage. Commissions we see as a conflict, but when it comes to working on a percentage, we think that aligns the interest between the adviser and the client.”

ifa reported recently that ASIC is also seeking external legal advice to determine whether it should prohibit advice firms from calling themselves ‘independently-owned’, unless they meet the Corporations Act definition of independence.

Ms Bird said yesterday she hopes to obtain the advice before the end of the year, but cannot guarantee. 

ASIC to consider whether asset-based fees are conflicted
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