Since 1 July 2012, under Division 4 of Part 7.7A of the Corporations Act,
there has been a ban on conflicted remuneration.
Currently, remuneration received in relation to the provision of both personal
advice and general advice is captured by the ban on conflicted remuneration.
This arrangement reflects the fact that, while it is not in the nature of
general advice for the provider to take the kinds of steps envisaged by the
best interests duty, the provision of general advice may still be susceptible
to influence by conflicted remuneration.
Currently, the legislation allows a targeted exemption for general advice from
the ban on conflicted remuneration in certain circumstances.
In this chapter, the committee looks first at personal advice, general
advice and commissions and then at the proposed exemptions from the ban on
Section 963A provides the following definition of conflicted
Conflicted remuneration means any benefit, whether monetary
or non-monetary, given to a financial services licensee, or a representative of
a financial services licensee, who provides financial product advice to persons
as retail clients that, because of the nature of the benefit or the circumstances
in which it is given:
(a) could reasonably be expected to influence the choice
of financial product recommended by the licensee or representative to retail
(b) could reasonably be expected to influence the
financial product advice given to retail clients by the licensee or
The original FOFA legislation recognised that a broad range of benefits
'could be interpreted as possibly influencing advice'. It also appreciated that
benefits that would only have a remote influence on advice should not be
Thus, the ban on conflicted remuneration does not apply to some areas.
Sections 963B and C stipulate the circumstances under which a monetary
or non-monetary benefit received by a financial service licensee, or a
a financial services licensee, is not conflicted remuneration. As it stands,
the Act now imposes a ban on the licensee and their representatives from
receiving remuneration that 'could reasonably be expected to influence the
financial product advice given to retail clients'. The Act also bans the
payment of such remuneration by product issuers or sellers.
The current bill would amend the Corporations Act to broaden and clarify
exemptions from the ban on conflicted remuneration. Specifically, the
amendments relate to:
- general advice—providing a targeted general advice exemption from
the ban on conflicted remuneration (section 963B);
- execution-only exemption—broadening the execution-only exemption
so that it applies where no advice on that product, or the class of products of
which the product is one, has been provided to the client by the individual
performing the execution service in the previous 12 months (paragraph
- education and training exemption—expanding the education and
training exemption to include training relevant to a financial services
business (paragraph 963C(c);
- basic banking—broadening the basic banking exemption so that it
can be accessed when advice on other simple (Tier 2) financial products is
provided at the same time as advice on a basic banking product and/or a general
insurance product (section 963D);
- volume-based shelf-space fees—clearly defining volume-based
shelf-space fees and the payments the ban on volume-based shelf-space fees
to capture (subsections 964 (1) and (2) and section 964A);
- client-pays exemption—clarify the operation of the client-pays
exemption (note at end of section 963A and 963B(1));
- mixed benefits—clarify the exemptions from the ban on conflicted
remuneration to allow a benefit to relate to more than one exemption—that is permitting
'mixing' of benefits in relation to products or circumstances that are exempt
from the ban on conflicted remuneration';
- regulation-making powers—introducing limited regulation-making
to address future remuneration structures that may be inadvertently captured by
the ban on conflicted remuneration.
General advice exemption
Submitters did not comment specifically on all of the amendments
providing an exemption from conflicted remuneration. They did, however, focus
particularly on the general advice carve-out.
As the law now stands, remuneration (both monetary and non-monetary)
received in relation to the provision of both personal advice and general
advice is captured by the ban on conflicted remuneration. Nonetheless, the
legislation allows for exemptions from this ban. Even so, in the government's
view the application of the ban on conflicted remuneration imposed 'unnecessary
burdens on industry by capturing individuals not directly involved in providing
advice to clients'.
For example, the Explanatory Memorandum noted that the ban currently:
...captures employees such as website designers or general
information seminar providers who are not in product sales related areas.
Industry argue that they are currently required to maintain complex systems
when providing general advice to ensure compliance with the existing conflicted
remuneration provisions. These systems are costly to implement and maintain.
In response to consumer and stakeholder concerns about the original
amendment being too broad, the government decided to restrict the operation of
According to the Explanatory Memorandum, the government has undertaken to provide
a 'general advice exemption' from the ban on conflicted remuneration. The
proposed exemption would only be available in particular circumstances.
Although the bill would exempt general advice from conflicted remuneration
under certain circumstances, conflicted remuneration on personal advice would
continue to be banned.
The Explanatory Memorandum noted that the revised general advice exemption would
exempt benefits from the definition of conflicted remuneration if the following
conditions were satisfied:
- general advice is provided by an employee;
- the employee has not given personal advice to the person
receiving the general advice in the past 12 months; and
- general advice is in relation to a product issued or sold by the
The Explanatory Memorandum noted further:
This amendment alleviates the unintended consequences of the
original general advice ban without providing too broad an exemption. Website
designers, people giving seminars, and other employees who are involved in the
preparation of general advice, but who do not provide personal advice, will now
be able to utilise the general advice exemption. However, advisers who provide
personal advice as well as general advice will not be able to utilise the
exemption. As such, this amendment removes the unintended consequences whilst
still allowing consumers who receive personal advice to remain confident that
their advice is in no way influenced by conflicted remuneration.
The proposed amendments make a clear distinction between general and
Personal and general advice
Personal advice is financial product advice that takes into account the
client's objectives, financial situation and needs. ASIC provides the following
Advice may be regarded as personal advice if it is presented
in a way that means a reasonable person might expect you to have considered one
or more of the client's objectives, financial situation or needs.
According to ASIC, the test for whether a provider is giving personal
- whether the provider is in fact giving financial product
advice—that is, whether the provider is making a recommendation about a
financial product; and
- whether the provider has considered the client's relevant
circumstances in relation to giving or directing the advice, or whether a
reasonable person might have expected the provider to do so (section 766B(3)).
On the other hand, general advice is financial product advice that does not
take into account the client's objectives, financial situation and needs. ASIC
makes the following distinction:
General advice about a financial product will not be personal
advice if you clarify with the client at the outset that you are giving general
advice, and you do not, in fact, take into account the client's objectives,
financial situation or needs.
Many submitters spoke about the potential for a return of commissions.
Indeed, some feared that the exemptions from the ban on conflicted remuneration
would re-allow or reopen the door for conflicted forms of remuneration to be
The Explanatory Memorandum to the original FOFA described a commission
as typically 'an arrangement between a product provider and the adviser or the
adviser's licensee and is built into a financial product'.
FOFA recognised that product commissions:
...may encourage advisers to sell products rather than give
unbiased advice that is focused on serving the interests of the clients.
Financial advisers have potentially competing objectives of maximising revenue
from product sales and providing professional advice that serves the client's
As such, FOFA imposed a ban on the receipt of remuneration that could
reasonably be expected to influence the financial product advice given to retail
clients. There were a limited number of exemptions to the conflicted
remuneration provisions and the bill seeks to broaden this carve-out further.
Opposition to broadening exemptions from the ban on conflicted remuneration
As noted above, a number of submitters saw the proposed amendments as
a way of reintroducing the payment of commissions on financial products and
wanted no change to the bans on conflicted remuneration. One particular concern
was exempting general advice from the ban on conflicted remuneration.
CPA Australia and the Institute of Chartered Accountants Australia were troubled
by the prospect of a return to commissions—a specific payment in return for a
specific sale, usually directly from a third party. They were strongly of the
view that 'all commissions have the potential for real and perceived conflicts
of interest and should therefore be removed'. In their view the proposal:
...to loosen this ban and permit commissions on general advice
not only undermines the principles of the FoFA reforms, they return to
encouraging a sales culture in the industry rather than focusing on provision
of quality personal advice...Therefore it is imperative that conflicted
remuneration structures, especially those usually aligned with sales, are
Despite the fact that general advice does not take into
consideration a client’s circumstances, the intention remains to influence the
sale of a product otherwise there would be little value in remunerating general
advice via a conflicted remuneration model.
Further, we are concerned returning to a conflicted
remuneration model for general advice may adversely impact the community’s
perception of the broader financial services industry including those licensed
advisers who provide personal advice. Given the very public debate over these
reforms, and the number of consumer advocates engaged, this is a very real
They did not believe that the proposed changes were in the public
In their view, the low levels of financial literacy in Australia must be
as this factor 'substantially increases the risk that consumers may not be able
to differentiate appropriately between general and personal advice'. In their
minds, placing this onus on the consumer adds further complexity and
uncertainty on those consumers who choose to seek advice.
In essence, CPA Australia was of the view that the trouble with commissions was
their potential 'to create real and perceived conflicts of interest'. Mr Drum,
CPA, and his colleague, Mr Elvy, Institute of Chartered Accountants, argued
that remuneration models based on a commission structure do not align with the
services generally provided by a professional.
The Institute of Chartered Accountants would like to see more detail on
this matter but would be comfortable with 'a form of incentivisation' if there were
a balanced scorecard'.
To the suggestion that the government's intention was not to bring back
commissions, Mr Elvy replied that:
One of the challenges, looking at the coverage of this reform
debate, is: how does a consumer understand the concepts of general advice,
personal advice, commissions and so on? There is still a lot of complexity
there which we believe needs to be addressed. The concept of commissions with
general advice we believe is probably confusing for consumers to understand.
The concern about the return of commissions was shared by a number of
other submitters. National Seniors argued that advisers must be free of any
real or perceived bias at all times regardless of what type of advice they were
providing to clients.
It then spoke of the risks that commissions pose to consumers:
Commissions by their nature have the ability to influence
advisers and create a conflict between advisers providing the most appropriate
advice to the client and securing personal financial incentives from commission
payments. At their worst, inappropriate arrangements for commissions can lead
to the collapses of large companies and result in consumers losing millions of
dollars in savings. ASIC indicates that conflicts of interest embedded in
financial advice distribution and remuneration, that lead to poor advice, are
the heart of this problem.
It also noted that a larger number of consumers receive general advice as
opposed to personal financial advice:
More and more consumers will receive their investment product
information from general rather than personal advice, including advice received
directly from the product issuers (which may be provided directly from bank and
credit union tellers) bypassing the traditional personal advice provided by
financial advice providers.
National Seniors believed that providing a general exemption on the ban
on conflicted remuneration would result in reduced quality of advice provided
to consumers, leading to major consumer detriment.
It argued that 'consumers and the wider financial market must be protected from
the detrimental impact of commissions on all levels of advice'.
The FPA opposed strongly any possible reintroduction of commissions for
financial product advice on superannuation or investment products. It
acknowledged that there had been unintended consequences of the FOFA reforms
for general advice providers. In its view:
...on a broad interpretation of section 963A and the term
'conflicted remuneration', the ordinary remuneration for general advice
providers could be considered conflicted remuneration, even where that advice
is limited to basic information about a product.
The FPA explained that there were several risks associated with commissions
for general advice, which included:
- the conflicted remuneration, which drives business models that encourage
a complementary sales model of financial product issuance and distribution, poses
a real risk of product mis-selling to retail investors and was rightly banned
by the future of financial advice reforms;
- commissions incentivise the provision of general advice as a form
of consumer education or a replacement for personal advice—general advice is
inappropriate for that purpose as it makes it more difficult for consumers
to distinguish personal financial advice from marketing material or product sales;
- commission payments have eroded public confidence in our
financial system—Australians will not have the confidence in our financial
system as long as providers of products or advice are exposed to perverse
incentives such as commissions; and
- allowing superannuation investment commissions to be paid on
general advice has the potential to shift licensees and representatives away
from the provision of personal advice in order to earn commissions.
Mr Dante De Gori, FPA, sought to clarify his association's approach to
remuneration, stating that it would object not only to commissions but to
individual incentivisation on a per-product basis.
He then went on to explain that they wanted to remove anything that was
directly embedded in a product:
Anything embedded in that product sale that is directly
passed on to an individual is therefore a commission.
Indeed, the FPA had 'no issue with the balanced scorecard approach with
incentivisation, normal commercial arrangements that are reasonable in an
employee situation—the issue was about embedded product commissions'.
Mr Rantall, FPA, had concerns about the word 'advice' being used and
attached to 'general' advice. Notwithstanding that objection, he was of the
...if it is general information, people should be getting as
much general information as they possibly can, whether it be from their bank or
their superannuation fund. We have no issue with that. The issue we have is
embedding commissions into product as a form of incentive payment. We also have
no issue with reasonable balanced-scorecard-type salary and bonus payments.
According to Mr Rantall it was:
unfathomable to think that someone could give general
advice—not personal advice but one-off transactional advice that should not be
specific to someone's circumstances—and potentially that person could receive
an ongoing trailing commission for the rest of the life of that product, where
the client has no control over that commission and cannot turn it off. It is a
Mr Rantall understood that that was not the intention of the proposed
legislation. Even so, he stated, we 'still do not think it is the intent of the
legislation, but it is the intent of the drafting'.
In essence, according to Mr Rantall, the real issue was the 'separation
of product from advice'. He argued:
If a commission is a conflicted remuneration then it is
conflicted regardless of the business model in which it is paid or the type of
advice that is provided to consumers.
Mr Rowe, FPA, reinforced this message—'if a commission is bad for
personal advice it is bad for general advice. If something is evil it is evil'.
He went on to state:
As we sit here today, and I think has been confirmed by
Treasury, the drafting still allows for embedded product commissions to be
reintroduced. We believe that can be fixed by defining what a commission is and
banning it. We encourage the government to move in that direction.
Thus, while generally in favour of the bill, the FPA could not support
the proposed legislation if commissions on general advice remained. In its
view, 'As the FOFA reforms were intended to protect consumers from unethical
the existing legislation creates unintended regulatory overreach.'
It recommended that additional amendments be made:
Sales commissions (both upfront and trailing) should be
defined by the Corporations Act and banned with respect to financial product
advice on superannuation and investment products.
General advice should no longer be a form of financial
product advice, and instead should be re-termed 'factual information' or
'financial product information'.
Financial product information/factual information should be
regulated with a warning similar to the general advice warning. This warning
should make it clear that the information is not financial advice, it is
information about a financial product or a class of financial products.
Licensing and all the other forms of regulation which
currently apply to general advice should apply to financial product
The term Financial planner/adviser should be defined by
legislation, in order to prevent individuals who offer financial product information/factual
information from representing themselves as financial planners or financial
The FPA recommended that the committee engage 'in close consultation
with stakeholders on changes to the general advice terminology and definition'.
Agreeing with FPA's contention, Mr Richard Webb, Australian Institute of
Superannuation Trustees, indicated that there was probably room for a category
of information that goes out there that certainly is not called 'advice' and is
not confused by consumers as being advice.
He informed the committee that investors do not know the difference between
terms such as information and advice and it was not good enough to suggest that
they learn the difference:
...a lot of financial products are surprisingly more complicated
than what people seem to think they are. A lot of the time we talk about basic
deposit products as being simple. However, I am not a hundred per cent certain
many investors are really familiar with how liquidity works with these products
and how if you want an early withdrawal you are going to have to pay an
interest adjustment plus a fee.
In his view, the 'very notion that marginally different types of
information should be the basis of different compliance remuneration regimes
should be resisted, particularly when investors do not know the difference'. He
argued that the opportunity for regulatory arbitrage was too great to ignore.
The Association of Financial Advisers (AFA) was among the number of
submitters very uneasy about the possibility of commissions creeping back as a form
of remuneration through the provision of general advice. Mr Brad Fox, AFA, explained:
When we talk about the accessibility to advice, there are
some circumstances where general advice is completely appropriate. If, for example,
a client already has a super fund and rings the manufacturer or the owner of
that super fund, and let's assume it is a bank, they would expect to be able to
get some information about that product—not advice about what they should do
within that product but advice about the product. For example, what is the
administration fee? That is general advice.
With regard to the exemption of general advice for conflicted
remuneration, Mr Fox stated that the whole adviser marketplace has to be very
clear on this matter. He was firm in his view that advisers licensed to provide
personal advice on tier 1 products, which are the complicated products, should
not be able to get commissions for general advice. But he believed that the
exemption should go further stating that the AFA did 'not even think that bank
tellers, for example, should be able to receive commissions for general advice'.
Mr Fox stated that they should be able to be recognised for their job
performance, but do not think they should get commissions on general advice.
He emphasised this point:
If someone were in a situation where they were not licensed
to provide tier 1 personal advice—and the classic example would be a bank
employee, an over-the-counter type situation—we would not want them to be
receiving a fee, a percentage, for each individual sale of a product.
But, if you were the client coming in and I was the bank
I help you open a new super fund with our bank's product, I do not think I
should get $50 for that or one per cent of what you put into it. However,
if I were doing a good job overall, and bringing in the balanced scorecard
approach, then, yes, I should be able to be recognised for doing a good
job...providing personal advice on tier 1 products should not be able to be
remunerated for giving general advice.
In his view, the drafting could be 'improved'. He informed the committee
that AFA had been working with other stakeholders about how they might be able
to do that and would continue to offer that support.
According to CHOICE, the proposed additional exemptions would create 'further
situations where conflicted remuneration is likely to impact on the quality of
CHOICE argued that the changes 'undermine the original FoFA reforms and place
consumers at risk'. It did not believe that the protections were adequate. It referred
to conditions that would restrict the general advice exemption to employees who
had not provided advice to the person receiving the general advice in the past 12
months. In its view:
The twelve-month rule could be easily circumvented if one
staff member provides advice and another sells the product. Additionally,
consumers are still not likely to note a distinction between general and
personal advice and may incorrectly believe that the advice provided is
appropriate to them.
Recently conducted research by CHOICE into consumer sentiment on the
changes showed that 81 per cent of consumers were concerned that bank tellers
would be able to sell complex financial products without assessing their
personal needs and that they would earn a commission for doing so.
Mr Kirkland, CHOICE, explained that consumers were expected to work out whether
they were receiving general advice and understand that there was 'a lower bar
and should be more cautious'.
In his view, that was completely unrealistic:
That is one of the things we need to bear in mind when we are
looking at things like the changes to conflicted remuneration that are
contemplated here. It is just not realistic to expect the consumer to
understand that distinction between personal and general advice.
COTA was similarly concerned about situations where consumers were
required to understand whether advice was personal or general. It told the
committee that the abolition of conflicted remuneration for personal advice was
'one of the most important components of the package in terms of building trust
in the financial planning industry'. It stated that one of its concerns with
allowing conflicted remuneration was that:
...many people do not understand the distinction between
personal and general advice and so may be susceptible to strong selling
techniques, for example from bank staff. They may purchase products that are not
appropriate for them but which they believe 'were recommended by my bank'.
In its view, the protections outlined in the bill around the type of
product and the distinction between provision of personal and general advice were
not 'strong enough'. It cited CHOICE's research showing that 81 per cent of
consumers were concerned about being sold complex products by bank tellers.
COTA found that the feedback it received reflected CHOICE's research results.
COTA wanted to see:
...a robust professional financial advice industry further
develop in Australia, in which the regular provision of independent and
comprehensive advice becomes the norm not the exception. This is one component
of improving financial literacy among people who for the first time, due to
compulsory superannuation, will have significant retirement assets but who are
not familiar with financial services and products. Allowing conflicted
remuneration for general advice will tend to skew incentives toward the provision
of such advice rather than independent, comprehensive, fee based personal advice.
Ms Campo, Industry Super Australia, referred to what she described as
the rhetoric that supported this bill, which talks about the need to ensure
that people can access assistance and advice, particularly from bank tellers. In
the view of Industry Super, however, the exemption was not really about
There is already a complete exemption for basic banking
products in the FoFA legislation. Therefore, what we are talking about is
allowing commissions and other forms of conflicted remuneration to be paid on
complex products, including superannuation but also others like managed
investment schemes and leveraged products, which have been the subject of many
previous inquiries due to the consumer losses that have ensued.
Industry Super Australia was also worried that there were no disclosures
in the general advice setting to consumers 'to put them on guard that they are
not being given impartial general advice, that they are actually being sold
AIST explained that although the exemption would apply to general
financial product advice provided to retail clients, it would apply to all
financial products, whether they were relatively simple, such as basic banking
products, or considerably complex, such as structured investment products or
The SMSF Professionals' Association of Australia Limited also opposed
the amendments to provide a limited exemption from the ban on conflicted
remuneration for general advice which is provided in a specific set of
circumstances. It was strongly of the view that there was no room for
conflicted remuneration in financial services, even where the financial advice
being provided does not specifically take into account the consumer's personal
It stated that remuneration models based on commissions or volume payments were
contradictory to a financial adviser providing the best advice for the client, whether
they provide personal or general advice.
...the best consumer outcomes must be achieved independently
from any links with product remuneration. This should be achieved in an
environment where remuneration is aligned with providing high quality advice
and on a fee for service basis, not on a commission or volume basis which
incentivises sale of products over the provision of objective, quality advice
which is in the genuine interest of the client.
SPAA also referred to the difficulty distinguishing between general and
personal advice. It registered its concern that 'a limited exemption for
general advice from the ban on conflicted remuneration is complicated by the
blurring of the distinction between general and personal advice'. It stated:
By allowing general advice to receive conflicted remuneration,
there is an incentive for advisors and dealer groups to push the limit of this
distinction which has been misinterpreted to favour the advisor's position to
the detriment of the client. This may have the result of consumers receiving
personal advice that is paid for through commission based fees and not subject
to the rigours that personal advice must stand up to (i.e. statement of advice
and know your client obligations). 
The association made plain that 'increased access to general advice does
not equate to consumers receiving financial advice which is appropriate,
adequate or will assist them in making improved financial decisions'.
It warned that the amendments would result in financial institutions that
provide financial products and advice—such as banks and superannuation
funds—gravitating towards business models based around general advice. It
suggested that this development would be 'at the cost of consumers who seek
advice through a major financial institution'. In its views, such consumers
would be 'pushed towards general advice which relates to the institution's
products rather than receiving advice that addresses their needs'. If these
amendments were introduced, SPAA's research suggested that this shift may
encourage less engagement by consumers in their financial decisions. According
to SPAA, this tendency may have an effect of 'encouraging greater vertical
integration in businesses that provide both financial advice and financial
Allowing commission based remuneration for general advice in
effect lowers the bar that was in place prior to the FoFA amendments and
clients are in a worse position in relation to objective advice than they have
been in the past. The outcome is a detrimental result for consumers. While the
changes in the Bill may lower the cost of general advice in a limited set of
circumstances they are likely to lead to an increase in the cost of personal
In summary, the SPAA believed that the amendments were likely to lead to
poorer and more conflicted advice being delivered to consumers and, hence,
there was a clear need for a clearer distinction to be made between what is
financial advice and what is factual or sales information.
It recommended that the government delay any changes to the ban on conflicted
remuneration until after the Financial System Inquiry delivers its report to
the Treasurer and has considered alternative approaches to licencing financial
The Institute of Public Accountants was aware of the controversy around
exempting general advice from the ban on conflicted remuneration in certain
circumstances. It appreciated both sides to this argument.
On the one hand, consumers who have done research and simply
wish to purchase a product should be able to do so without having to pay for
expensive or unnecessary (holistic) financial advice. This is part of scaled
advice or making financial advice more affordable. On the other hand, some
consumers may benefit from this advice, even though they may not wish to pay
for it. This could lead to consumers purchasing the wrong products or being
up-sold or cross-sold products, which arguably defeats the intention of the
In addition, giving an exemption to ADIs would provide them
with an advantage and create an unlevel playing field. However, extending the
exemption could undermine the objective of FoFA of removing the potential for
The institute was inclined to disagree with the proposed amendment but
was of the view that the matter of exemption warranted more discussion and
Support for broadening exemptions from the ban on conflicted remuneration
Minter Ellison Lawyers was of the view that product issuers or someone
acting on their behalf giving general advice should be excluded from the ban on
Mr Batten noted that FOFA's focus had 'always been
on ensuring that clients receive advice on their circumstances which is free
from any conflict arising from remuneration'. He explained further that the
bill would only apply to advice that a client knows is general advice not
tailored for them.
Advice will only be general advice where a client could not
reasonably think that their circumstances should be considered. So, in other
words, if a client thinks they are getting personal advice then basically they
are getting personal advice, and that means the prohibition will apply.
Hence, Minter Ellison Lawyers did not believe that remuneration controls
were needed for representatives of product issuers when not giving personal
The issuer will be liable for any misleading or deceptive
conduct and will therefore need to ensure that clients do not receive
inappropriate general advice. Marketing brochures are an example of where the
ban on conflicted remuneration should not apply. It adds costs without any
Minter Ellison Lawyers observed that general advice can be given in many
different circumstances, such as 'in brochures, on the internet, in correspondence
and by call centre and branch staff'. It acknowledged that product issuers were
'naturally and appropriately concerned to promote their products'. In its view,
however, there could be no doubt that retail clients expect them to do exactly
that: in other words
'the provider's motivation is clear in each case'.
Thus, according to Minter Ellison, product issuers and their staff would
'have a strong interest in the success of their products however they are remunerated'
and therefore there would be no need to regulate their remuneration.
They cited a number of key consumer protections that exist in relation to the
conduct of product issuers and their representatives, including:
...the prohibition on misleading and deceptive conduct in ss
12DA and 12DB of the ASIC Act and ss 104IE and 104IH of the Corporations Act,
the requirement to give general advice and advertising warnings in ss 949A and
I0I8A of the Corporations Act, restrictions on unsolicited contact with clients
in ss 992A and 992AA of the Corporations Act and product disclosure requirements
in Part 7.9 of the Corporations Act.
Taking account of these provisions, Minter Ellison Lawyers submitted that
these safeguards provided an appropriate and sufficient level of protection in relation
to general advice.
They did, however, draw attention to the proposed exemptions in section 963B(6),
noting that this exemption was limited to employees of licensed product
In practice, it is unusual for product issuers or licensees
to employ staff directly. In most corporate groups, a related service company
will be the employer of staff for all or most companies in the group. Even in
cases where a product issuer such as a bank is the group employer, the product
issuer is unlikely to be the issuer of the particular products in question. For
example, where a bank is the group employer, the bank will only issue banking
It suggested that s 963B(6) should be amended to: also apply to employees of
related bodies corporate of the product issuer; and be extended to agents of
the product issuer and others acting under the name of the product issuer. 
FSC supported the amendments that would 'permit remuneration to
employees who provide services which, however remote from the consumer, may be
deemed today as conflicted remuneration'.
That is, the broad definition banning remuneration at section
963A catches within the ban employees who are not providers of advice or are
providers of generally available information and general advice 'because of the
nature of the benefit or the circumstances in which it is given'. That is, no
matter how remote (the employee’s work product is from influencing the choice
of financial product and/or the advice eventually provided by an advice provider),
remuneration including performance bonuses paid to an employee are nonetheless
caught and banned by FoFA.
In its view, this was clearly legislative overreach and highlighted that
the balance between consumer protections (banning remuneration to create an
advice over a sales culture) had 'swung too far and actually impedes basic
information services consumers need'.
The FSC understands that the intent of the provision in
the bill was to enable a business to give general advice to retail clients on
its own products, through its employees, and to leave the business free to
reward those employees on a performance basis without the constraints of the
prohibition on conflicted remuneration.
Mr Andrew Bragg, FSC, told the committee that from the council's viewpoint
the drafting of the bill needs 'some more work', in terms of ring fencing and
being very clear about what that exemption includes and what it does not. As an
example, he stated that 'no-one wants to see commissions brought back'.
His colleague, Ms Cecilia Storniolo, reinforced this message that the general
advice exemption 'requires extra ring fencing to make sure that it is clear
that a financial adviser cannot receive those monies': that the proposed
legislation does not allow the reintroduction of commissions.
According to the FSC, the nomenclature in the law today is unhelpful especially
with/for consumers. FOFA has not banned all forms of remuneration—but by
drafting legislation which calls everything a conflicted payment the perception
is created such that even permissible or exempted payments/benefits are
perceived to be conflicted. 
The FSC recommend that consideration be given to rename:
- section 963B—'Monetary benefit given in certain circumstances not
conflicted remuneration' as 'Permissible monetary benefits,' and
- section 963C—'Non-monetary benefit given in certain circumstances
not conflicted remuneration' as 'Non-monetary benefits'.
The Stockbrokers Association of Australia was also concerned that the
conflicted remuneration provisions originally applied to the provision of both
general and personal advice. In its view, extending the scope of FOFA to
general advice 'unnecessarily complicated the implementation and administration
of the regime' and 'went well beyond the original intention behind FOFA'. From
the inclusion of general advice in the FOFA provisions made the scope of the
prohibition so broad as to make it unworkable. In support of the amendment,
it suggested that:
By definition, general advice does not take into account a
person's needs or objectives so it is not appropriate to apply a conflicted
remuneration regime when a recommendation is not being made based on the
person’s individual circumstances.
Ms Diane Tate, Australian Bankers' Association, explained that the banks
were endeavouring to make sure that they could continue to provide general
advice without having to have convoluted, complex and costly compliance in the
background. In her view, such complicated and expensive compliance could prevent
banks from being able to provide the freely available information that they do now.
She informed the committee that bank staff were not paid commissions but
a salary and may have access to a performance bonus based on a balanced
scorecard. According to Ms Tate, the banks were:
- not seeking to reintroduce or charge commissions; or
- not trying to gut or dilute the best interests duty.
In her words, the banks were trying to:
...get some clarity and simplicity to that so that it does not
cut across our attempts to be able to provide more relevant and targeted
information—call that 'scaled advice' if you like, but it is personal advice
that is relevant to the circumstances of customers.
The ABA also underlined the fact that general advice, by its nature,
does not take into account an individual's relevant circumstances and must
contain a warning to that effect. It may be provided directly via employees and
staff or indirectly via brochures or websites (or other electronic interfaces).
According to the ABA:
We consider that the availability of general advice is
important for consumers to help them better understand financial products and
services, and the options available to them in an affordable manner and through
a variety of access channels. This information and general advice is important
to lift levels of financial literacy and engagement. It is also important for
product issuers to be able to provide information and advice about their own
financial products and services. Consumers readily expect this in their
customer service interactions with a bank or other product issuer.
The ABA supported a limited carve out for general advice which aimed to:
- confine the exemption to employees and staff—a person working
exclusively under the name or brand of the licensee—and preparing or giving
general advice on the financial products of their licensee or a related body
corporate of the licensee;
- prohibit the person also providing personal advice on financial
products, other than products already exempt, being basic banking products,
general insurance products and consumer credit insurance (‘Tier 2 products’);
- prohibit the person receiving a monetary benefit commonly
referred to as an upfront or ongoing commission.
Ms Meghan Quinn, the Treasury, stated bluntly that the intention was not
to have commissions but 'to make sure that not absolutely everybody who is ever
answering a question on the telephone is covered by the legislation'.
Her colleague, Mr Tee, noted that the Corporations Act mentions commissions a
few times but does not actually provide a definition of commission. He added that
the matter of commissions was one of the issues that Treasury was working
Mr Bede Fraser, the Treasury, informed the committee that the government was
still open to amendments to achieve the policy intention, particularly 'around
the content of allowing commissions'. He stated that the government was 'currently
engaging with people to ensure that the general advice provision would not
allow the reintroduction of commissions'.
Clearly, a number of submitters lodged strong objections to the
amendments broadening the exemptions from conflicted remuneration. They came
not only from consumer protection groups but from industry groups including CPA
Australia and the Institute of Chartered Accountants Australia, FPA, the Australian
Institute of Superannuation, AFA, FPSA, and SPAA. The term 'commission' was
often used with reference to the original objective of the FOFA reforms, which
was to put an end to such practices.
Those in support of the amendments, however, noted that the current
arrangements captured people or circumstances that were never intended to be
subjected to the ban on conflicted remuneration. Furthermore, they stressed
that the exemption related to general advice only and not personal advice. The
bill's intention is to enable a business, under certain circumstances, to give
general advice to retail clients on its own products. Even so, the FSC, which
supported the amendments, recognised the need 'for more work' to be done on the
drafting, which 'requires extra ring fencing' to ensure that the proposed
legislation does not allow the reintroduction of commissions'. Indeed, Treasury
officials indicated that commissions 'was one of the issues that Treasury was
The committee accepts that the current law needs to be changed to remove
the unnecessary complications associated with the provision of general advice.
In this regard, the committee is concerned about the confusion that surrounds
the proposed changes and the fear that they have the potential to reopen the
door to commissions. The committee also notes the concerns about the possible
misuse or misunderstanding of the term 'general advice'.
A number of witnesses held the view that the legislation still required
more work. The IPA believed that the matter of exemptions 'warranted more
discussion and consultation'. The AFA suggested that the drafting could be
improved and it was collaborating with stakeholders to see how they could
achieve that objective. The FPA noted that while it did not think that the
legislation intended to allow the return of commissions, in its view the
current drafting provided no such assurance. The FSC referred to the general
advice exemption requiring 'extra ring fencing' to make sure that it was clear
that an adviser could not receive commissions. The SPAA suggested that the
government delay any changes to the ban on conflicted remuneration until after
the Financial Systems Inquiry. The Institute of Chartered Accountants would like
to see more detail on this matter of exemptions to the ban on conflicted
remuneration. Even the Treasury suggested that it was open to amendments.
The committee recommends that the Explanatory Memorandum make clear that
it is not the government's intention to reintroduce commissions.
The committee recommends that the government consider the provisions
governing conflicted remuneration and redraft them to ensure that there is
greater clarity around their implementation.
The committee recommends that the government give consideration to the
terminology used in the Explanatory Memorandum and legislation (for example,
section 766B), such as information, general advice and personal advice, with a
view to making the distinction between them much sharper and more applicable in
a practical sense when it comes to allowing exemptions from conflicted
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