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 that the association had been liaising with crossbench 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 crossbench 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.
