ASIC RG 246 — ASIC Regulatory Guide – RG 246 Conflicted and other banned remuneration

Page 1 REGULATORY GUIDE 246 Conflicted and other banned remuneration November 2024 About this guide This guide is for Australian financial services (AFS) licensees and their representatives and other entities that must comply with the conflicted and other banned remuneration provisions in Divs 4 and 5 of Pt 7.7A of the Corporations Act. It sets out our guidance on complying with these provisions and how we will administer them. The provisions apply to financial product advice given to retail clients and certain benefits given in relation to life risk insurance products. Page 2 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 2 About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by:  explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act)  explaining how ASIC interprets the law  describing the principles underlying ASIC’s approach  giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in November 2024 and is based on legislation and regulations as at the date of issue. In January 2025, we updated the date in notes under RG 246.56, RG 246.58 and RG 246.77 to ’9 July 2025’. In April 2026, we made amendments to reflect renamed Regulatory Guide 181 AFS licensing: Managing conflicts of interest (RG 181) and remove out-of-date information. Previous versions:  Superseded Regulatory Guide 246 Conflicted and other banned remuneration, issued December 2017, reissued December 2020  Superseded Regulatory Guide 246 Conflicted remuneration, issued March 2013 Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. Page 3 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 3 Contents A Overview .................................................................................................5 What this guide is about ..........................................................................5 Conflicted remuneration...........................................................................5 Other banned remuneration.....................................................................8 What happens if the ban is breached? ....................................................9 Previously grandfathered benefits .........................................................10 The anti-avoidance provision .................................................................10 How we administer the provisions .........................................................10 B Benefits that influence advice or product choice ............................12 Benefits that influence the advice ..........................................................12 Examples of conflicted remuneration in relation to advice ....................13 C Benefits that are excluded from the ban ...........................................17 Benefits given by the client ....................................................................17 Client-directed fees from superannuation funds ....................................20 General and consumer credit insurance commissions ..........................21 Benefits with a small value ....................................................................23 Passing on excluded benefits ................................................................24 D Exclusions in relation to life risk insurance products .....................25 Benefits that do not influence information given to a client ...................25 Commissions that satisfy the ‘benefit ratio’ and ‘clawback’ arrangements .........................................................................................25 E Performance benefits for employees ................................................33 Performance benefits and conflicted remuneration ...............................33 Evaluating the performance benefit .......................................................35 Transitional arrangements for remuneration for employees of an ADI .38 Performance benefits relating to life risk insurance products ................38 F Volume-based benefits .......................................................................40 Volume-based benefits and conflicted remuneration ............................40 Rebutting the presumption in s963L ......................................................42 Examples of volume-based benefits ......................................................42 Volume-based benefits for life risk insurance products .........................49 G Volume-based shelf-space fees .........................................................50 The ban on volume-based shelf-space fees ..........................................50 The fee-for-service exclusion.................................................................51 The scale efficiencies exclusion ............................................................52 Passing on a volume-based shelf-space fee to the client .....................54 Non-volume-based shelf-space fees .....................................................55 H Asset-based fees on borrowed amounts ..........................................56 The general ban on asset-based fees on borrowed amounts ...............56 Interaction with the best interests duty ..................................................57 Instalment warrants ...............................................................................57 Portfolios of products .............................................................................58 When the ban does not apply ................................................................58 I The anti-avoidance provision .............................................................60 What is anti-avoidance? ........................................................................60 Avoidance schemes ...............................................................................60 Schemes that are unlikely to be avoidance schemes ...........................63 Page 4 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 4 Appendix 1: Benefits that are excluded from the ban on conflicted remuneration ........................................................................................64 Appendix 2: Previously grandfathered benefits ......................................71 Rebate of previously grandfathered benefits .........................................71 Record-keeping obligations for AFS licensees ......................................74 Key terms .....................................................................................................76 Related information .....................................................................................81 Page 5 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 5 A Overview Key points The conflicted and other banned remuneration provisions in the Corporations Act ban the giving of certain benefits to persons who provide financial product advice and other financial services to clients. This guide sets out: • an overview of the conflicted and other banned remuneration provisions and relevant exceptions; • how we expect persons to comply with the conflicted and other banned remuneration provisions; and • how we will administer these provisions. What this guide is about RG 246.1 This guide is for Australian financial services (AFS) licensees and their representatives. RG 246.2 It explains the conflicted and other banned remuneration provisions in Divs 4 and 5 of Pt 7.7A of the Corporations Act. These provisions ban the giving of benefits that may influence the provision of financial services and financial products to retail clients. RG 246.3 The purpose of the conflicted and other banned remuneration provisions is to improve the quality of advice and other financial services that retail clients receive, and build trust and confidence in the financial services industry. Note 1: In this guide, we use the term ‘advice’ to mean ‘financial product advice’, as defined in s766B of the Corporations Act, and the term ‘client’ to mean ‘retail client’, as defined in s761G of the Corporations Act and Div 2 of Pt 7.1 of the Corporations Regulations 2001 (Corporations Regulations). Note 2: Unless otherwise specified, references in this guide to sections (s), divisions (Divs) and parts (Pts) are to the Corporations Act, and references to regulations (regs) are to the Corporations Regulations. Conflicted remuneration What is the ban on conflicted remuneration? RG 246.4 The ban on conflicted remuneration is outlined in Div 4 of Pt 7.7A of the Corporations Act. RG 246.5 The ban restricts the giving of ‘conflicted remuneration’, which is any benefit that: (a) could reasonably be expected to influence the product recommended or the advice given (see RG 246.7–RG 246.8); or Page 6 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 6 (b) are provided in response to information on, or dealing in, a life risk insurance product: see RG 246.10–RG 246.12. RG 246.6 The ban applies to: (a) an AFS licensee and its representatives (including authorised representatives), who are prohibited from accepting conflicted remuneration (see s963E, 963G and 963H). An AFS licensee must also take reasonable steps to ensure that its representatives do not accept conflicted remuneration (see s963F); (b) product issuers and sellers, who are prohibited from giving conflicted remuneration to a licensee and its representatives (see s963K); and (c) an employer of a licensee or representative, who is prohibited from giving its licensee or representative employees conflicted remuneration for work they carry out as an employee (see s963J). Benefits that influence advice or product choice RG 246.7 Unless a specific exclusion applies, conflicted remuneration is any benefit, given to an AFS licensee or its representatives where: (a) the licensee and its representatives provide financial product advice to clients; and (b) because of the nature of the benefit or the circumstances in which it is given, the benefit could reasonably be expected to influence: (i) the choice of financial product recommended to clients by the licensee or its representatives; or (ii) the advice given to clients by the licensee or its representatives (see s963A(1) and Section B). RG 246.8 Performance benefits given by employers to their employees (other than salary) may be banned depending on how these benefits are structured and how employees qualify for these benefits (see Section E). RG 246.9 There is a presumption that volume-based benefits are conflicted remuneration (see Section F). Benefits in relation to life risk insurance products RG 246.10 Certain benefits given in relation to information given on, or dealing in, a life risk insurance product are also considered to be conflicted remuneration, even in the absence of advice: (a) a benefit given to an AFS licensee or its representatives that relates to information given to a client about a life risk insurance product where access to the benefit, or the amount of the benefit, is dependent on the value or number of life risk insurance products subsequently acquired or Page 7 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 7 varied by the person to whom the information was given (see reg 7.7A.11B(1)); and (b) a benefit given to an AFS licensee or its representatives in relation to dealing in a life risk insurance product with a client where access to the benefit, or the value of the benefit, is dependent on the value or number of life risk insurance products to which the dealing relates (see reg 7.7A.11B(2)). Note: The benefits described in RG 246.10 are in addition to benefits under s963A in relation to life insurance. RG 246.11 There is an exclusion from the ban on conflicted remuneration if the benefit relates to a life risk insurance policy issued (or applied for) before 1 January 2018: see s1549B(2) and reg 7.7A.16H(2). Section D and Appendix 1 also set out specific exclusions that apply to benefits given in relation to life risk insurance products. RG 246.12 If the benefit relates to multiple activities (i.e. advice, information and/or dealing), the ban on conflicted remuneration only applies to one activity. The ban relating to advice is the primary ban, followed by information and then dealing: see regs 7.7A.11B(1)(d) and 7.7A.11B(2)(c). What benefits are restricted under the ban? RG 246.13 The ban on conflicted remuneration applies to a range of benefits that may be monetary or non-monetary. Non-monetary benefits could take a number of forms, including the following: (a) free or subsidised business equipment or services (e.g. computers and other hardware, software, information technology support and stationery); (b) hospitality-related benefits (e.g. tickets to sporting events or concerts and subsidised travel); (c) shares or other interests in a product issuer or AFS licensee; Note: Whether shares or other interests in a product issuer or licensee are conflicted remuneration is discussed at RG 246.139–RG 246.144. (d) marketing assistance; and (e) promotion or other ways of recognising an employee based on product recommendations or sales. Note: This is not intended to be an exhaustive list. This guide sets out in further detail whether a benefit, including a non-monetary benefit, is conflicted remuneration. Are there exceptions to the ban? RG 246.14 There are a number of exceptions to the ban. For example, benefits given by a client to a licensee or a representative in relation to the provision of a financial product or service are expressly excluded. There are also exceptions for commissions in relation to life risk insurance products. Further information on the exceptions is outlined in Section C, Section D and Appendix 1. Page 8 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 8 Other banned remuneration RG 246.15 In addition to the conflicted remuneration provisions in Div 4 of Pt 7.7A, the Corporations Act prohibits other forms of remuneration that have the potential to influence the advice received by clients: see Div 5 of Pt 7.7A. The other forms of remuneration that are generally prohibited are: (a) a platform operator accepting a volume-based shelf-space fee from a funds manager (see Section G); and Note: A shelf-space fee is a fee for making a funds manager’s products available through a platform. It also includes a discount on an amount payable, or a rebate of an amount paid, by a platform operator to a funds manager, where the discount or rebate is for the funds manager’s products being available through the platform. A fee will be volume based if it is wholly or partly dependent on the total number or value of the funds manager’s financial products to which the custodial arrangement relates. (b) an AFS licensee or its representatives, who provide advice to a client, charging asset-based fees on borrowed amounts used to acquire financial products by, or on behalf of, the client (see Section H). Note: An asset-based fee is a fee paid by a client for receiving advice, where that fee is dependent on the amount of funds used or to be used to acquire financial products by, or on behalf of, the client. A fee is an asset-based fee even if it is paid by a third party holding assets on behalf of the client, provided that the client directs the third party to pay the fee. Table 1: Types of remuneration covered in this guide Type of remuneration Does the conflicted remuneration ban or another ban apply? RG references Benefits that can influence the advice or product choice Yes. This type of remuneration is banned—it is conflicted remuneration under s963A Section B Certain benefits in relation to information and dealing in life risk products Yes. This type of remuneration is banned—it is conflicted remuneration even in the absence of advice: see reg 7.7A.11B(1) and (2) RG 246.10–RG 246.12 Benefits given by a client No. This is not conflicted remuneration: see s963A(1)(b). Section C Life risk benefits that do not influence the information given to a client No. This is not conflicted remuneration: see regs 7.7A.11C and 7.7A.11D Section D Life risk benefits that satisfy the ‘benefit ratio’ and ‘clawback’ arrangements No. This is not conflicted remuneration: see s963B(1)(b) and regs 7.7A.11C(1)(b) and 7.7A.11D(1)(b) Section D Performance benefits for employees who provide advice to clients This may be banned conflicted remuneration depending on the nature of the performance benefit Section E Page 9 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 9 Type of remuneration Does the conflicted remuneration ban or another ban apply? RG references Volume-based benefits that are wholly or partly dependent on the total number of products recommended or acquired Yes. This type of remuneration is banned—it is presumed to be conflicted remuneration: see s963L Section F Volume-based shelf-space fees Yes. This type of remuneration is banned—it is another type of banned remuneration: see s964A(1) Section G Asset-based fees on borrowed amounts Yes. This type of remuneration is banned—it is another type of banned remuneration: see s964D and 964E Section H Benefits in relation to general insurance products No. This is not conflicted remuneration: see s963B(1)(a), s963BB, s963C(1)(a) and reg 7.7A.12G. Appendix 1 Advice fees paid by superannuation trustees with member consent No. This is not conflicted remuneration: see s963B(1)(bb) Appendix 1 Note: This is not an exhaustive list. Appendix 1 contains a range of other benefits that are also excluded from the ban. Appendix 2 sets out benefits that were previously grandfathered benefits. What happens if the ban is breached? RG 246.16 The consequences of breaching the ban on conflicted remuneration are set out in Table 2. Table 2: Consequences of breaching the ban on conflicted remuneration Person Consequence of breach AFS licensee Civil penalty or administrative sanctions (e.g. a licence suspension or cancellation) Authorised representative Civil penalty, except where:  the AFS licensee provides the authorised representative with information about the nature of the benefit to be accepted by the authorised representative;  at the time the authorised representative accepts the benefit, they are not aware that the benefit is conflicted remuneration because the representative is acting in reliance on that information; and  the representative’s reliance on that information is reasonable (see s963G(2)) Administrative sanctions (e.g. a banning order) Other representative Administrative sanctions (e.g. a banning order) Note: Section 963H does not prohibit a representative that is not an authorised representative from accepting conflicted remuneration from their employer. However, the employer will be liable for a civil penalty if it gives an employee conflicted remuneration for the work they carry out: see s963J. Page 10 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 10 Person Consequence of breach Employer of an AFS licensee or its representatives for employees who provide advice to clients Civil penalty or administrative sanctions Product issuers and sellers Civil penalty Onus of proof RG 246.17 It is generally the party claiming that the ban on conflicted remuneration has been breached that bears the onus of proving that a benefit is conflicted remuneration. However, where the presumption that volume-based benefits are conflicted remuneration applies, the onus is on the person who is responding to a claim that they have breached the ban to show why giving or accepting the volume-based benefit is not conflicted remuneration. Note: For more information on volume-based benefits, see Section F. Previously grandfathered benefits RG 246.18 Before 1 January 2021, the ban on conflicted and other banned remuneration under Div 4 and 5 of Pt 7.7A did not apply to certain ‘grandfathered’ arrangements. RG 246.19 Appendix 2 provides information on the scheme under which grandfathered conflicted remuneration that remains payable on or after 1 January 2021 must be rebated. Appendix 2 also provides information on the records that an AFS licensee who is required to rebate conflicted remuneration must keep. The anti-avoidance provision RG 246.20 There is also a ban on entering into or carrying out a scheme that is designed to avoid the application of the provisions in Pt 7.7A, including the conflicted and other banned remuneration provisions: see s965 and Section I. The anti- avoidance provision is designed to ensure that the policy intent of Pt 7.7A is not avoided through industry or transaction structuring. How we administer the provisions RG 246.21 The following principles guide our approach to administering the conflicted and other banned remuneration provisions: (a) the provisions are designed to more closely align the interests of those who provide advice to clients with the interests of those clients; and Page 11 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 11 (b) this alignment of interests depends on the substance of a benefit over its form—that is, whether a benefit is one that could reasonably be expected to influence financial advice or financial product recommendations is more relevant than how the benefit has been labelled or presented to the client. RG 246.22 We are less likely to scrutinise benefits that are designed to achieve the outcome in RG 246.21(a). When looking at the substance of a benefit over its form, we will consider the overall circumstances in which the benefit is given, in deciding whether a benefit is conflicted remuneration. Page 12 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 12 B Benefits that influence advice or product choice Key points Conflicted remuneration is any benefit given to an AFS licensee or its representatives that could reasonably be expected to: • influence the advice given to clients by the licensee or its representatives; or • influence the choice of financial product recommended to clients by the licensee or its representatives. Benefits that influence the advice RG 246.23 A benefit will be conflicted remuneration if it could reasonably be expected to influence the advice given. RG 246.24 Whether a benefit is capable of doing this depends on the nature of the benefit or the circumstances in which it is given or accepted. Note: Additional obligations apply under the Corporations Act when an AFS licensee or its representatives provide advice to clients, For more information on some of the obligations that apply when advice is provided to clients, see Regulatory Guide 36 Licensing: Financial product advice and dealing (RG 36), Regulatory Guide 175 AFS licensing: Financial product advisers—Conduct and disclosure (RG 175) and Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244). Evaluating the substance of the benefit RG 246.25 When determining whether a benefit is conflicted remuneration, we will look at the substance of a benefit over its form, and consider the overall circumstances in which the benefit is given or accepted. This includes how an AFS licensee’s or its representative’s business is structured, the type of advice they provide and the types of products to which the advice relates. RG 246.26 This means, for example, that if a benefit is conflicted remuneration, doing the following does not change this fact: (a) stating in documentation that a benefit is not intended to influence the advice given; or (b) renaming the conflicted remuneration as a form of remuneration that is not prohibited by the Corporations Act—for example, renaming a commission from a product issuer as an ‘asset-based fee’, even though the fee continues to be paid by the product issuer to the AFS licensee. Page 13 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 13 RG 246.27 We will also look at a range of factors, including: (a) how the AFS licensee or its representatives gained (or gains) access to the benefit; (b) who is giving the benefit; (c) when the benefit is given or accepted; (d) what reasonably appears to be the likely reason for giving the benefit; (e) how the value of the benefit is determined; and (f) what the benefit is and its features. RG 246.28 A benefit may be conflicted remuneration if it could reasonably be expected to influence an AFS licensee or its representatives in giving advice recommending that clients acquire financial products or increase their interest in a financial product, rather than providing them with strategic advice, such as retirement planning advice or advice on wealth accumulation strategies. This is because conflicted remuneration includes benefits that, because of their nature or the circumstances in which they are given, could reasonably be expected to influence the advice given to clients by a licensee or its representatives: see s963A(1)(a)(ii). RG 246.29 This means that it is possible for a product-neutral benefit—that is, a benefit that is the same regardless of which financial products a client acquires—to be conflicted remuneration if it could reasonably be expected to influence the advice provided and it is not excluded from the ban on conflicted remuneration. Note: For more information on providing non-product-specific personal advice, see RG 175. RG 246.30 We are less likely to scrutinise benefits that are designed to more closely align the interests of those who provide advice to clients with the interests of their clients. Examples of conflicted remuneration in relation to advice RG 246.31 The following are examples of benefits that are generally conflicted remuneration: (a) commissions (whether upfront or trailing, fixed or variable) paid by a product issuer to an AFS licensee (whether the payment is made directly or through some other arrangement); Note: Commissions relating to life risk insurance products are excluded in certain circumstances: see Section D. (b) volume-based payments from a platform operator to a licensee; Page 14 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 14 (c) volume-based payments from a licensee to an authorised representative or other representative; (d) volume-based bonuses and other payments, such as a commission or one-off payment, to a financial adviser, which are calculated by reference to the number or value of financial products acquired by clients following the advice of the financial adviser. The payment could be made by: (i) the financial adviser’s licensee; (ii) a platform operator; or (iii) a product issuer; and (e) a discount on the fees paid by an authorised representative to its licensee based on client funds held in a particular financial product issued by a related party. Example 1: Sponsorship of conferences and soft-dollar benefits (conflicted remuneration) Scenario 1 An AFS licensee, whose representatives advise on a range of financial products from different product issuers, organises a conference for its representatives. The licensee invites product issuers to pay a substantial sponsorship fee in return for attending the conference and presenting information about their financial products. Scenario 2 A group of financial advisers is invited to attend an overseas conference organised by a product issuer. The invitation includes complimentary business class flights, five-star accommodation and a networking dinner from the product provider to the financial advisers. Commentary The test for determining whether the benefits provided in either scenario are conflicted remuneration is whether those benefits could reasonably be expected to influence the choice of financial products recommended or advice given. This depends on a number of factors, including: • the nature of the benefit, the circumstances in which it was given and how generous it is; and • what a reasonable person would consider to be the purpose of the person soliciting or giving the benefit (regardless of the actual purpose of the person soliciting or giving the benefit). The definition of conflicted remuneration in s963A is objective and it does not matter if the benefits actually do influence the advice given by the advisers. Both these examples are likely to breach the ban on conflicted remuneration. Page 15 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 15 Example 2: Financial adviser receiving commissions from a property developer (conflicted remuneration) Scenario A financial adviser has an arrangement with a property developer. Each time one of the adviser’s self-managed superannuation fund (SMSF) clients purchases a property from the developer, the developer pays a commission to the adviser. The adviser regularly provides advice to clients recommending that they establish an SMSF in order to invest in property using their superannuation money. Commentary The commissions paid to the adviser by the property developer are likely to breach the ban on conflicted remuneration. This is because, in the circumstances in which the commissions are paid, they could reasonably be expected to influence the adviser to recommend that its clients establish an SMSF, or use an existing SMSF, to invest in property when the adviser might not otherwise do so. Benefits that do not have an influence on advice RG 246.32 Benefits that do not influence advice are not conflicted remuneration. RG 246.33 Examples of benefits that generally do not influence advice include: (a) salary given to an AFS licensee or its representative; and (b) a licensee paying for a representative’s business expenses. Salary RG 246.34 Salary given to an AFS licensee or its representatives is generally not conflicted remuneration. Note: For a situation where a salary increase could be conflicted remuneration, see Example 8. RG 246.35 This includes salary paid by an employer that is: (a) an AFS licensee who pays an employee that is an authorised representative or other representative; and (b) an authorised representative who pays an employee that is a representative. RG 246.36 Specifically, the base salary given to such an employee is not conflicted remuneration if neither the level nor a component of the base salary or salary increases could reasonably be expected to influence the advice given. RG 246.37 An employee’s salary is generally conflicted remuneration if it is calculated by reference to the number or value of financial products recommended by Page 16 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 16 the employee to clients. Guidance on salary and the ban on conflicted remuneration is set out in Section E. Licensees paying for a representative’s business expenses RG 246.38 Benefits provided by an AFS licensee to its representatives (including authorised representatives) to cover business expenses incurred when providing advice on behalf of the licensee are generally not conflicted remuneration (e.g. business equipment such as telephones, desks and chairs), particularly where they are purchased for market value. However, this applies only if the availability of these resources: (a) does not depend on a factor that could reasonably be expected to influence the advice given by the AFS licensee or its representatives; or (b) is covered by an exclusion from the ban on conflicted remuneration. Page 17 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 17 C Benefits that are excluded from the ban Key points Certain benefits are specifically excluded from the ban on conflicted remuneration. These include, but are not limited to: • benefits given by the client; • client-directed fees from superannuation funds; • some insurance commissions; • ‘buyer of last resort’ arrangements; and • benefits with a small value. When an excluded benefit is passed on, or reflected in a benefit given to another AFS licensee or its representatives that provide advice to clients, this is a separate benefit. Note: These benefits are excluded regardless of whether or not they are volume based. See Appendix 1 and Section D for additional benefits that are excluded. Benefits given by the client RG 246.39 A monetary or non-monetary benefit is not conflicted remuneration if it is given by a client in relation to a financial product or financial service provided by the licensee or representative to the client: see s963A(1)(b). RG 246.40 This means that fee-for-service arrangements relating to the issue or sale of a financial product or financial product advice given by the licensee or a representative to the client are not conflicted remuneration. RG 246.41 To ensure a benefit given by a client is not conflicted remuneration, the benefit must be given in the following circumstances: (a) the benefit is given directly by the client, or the client causes or authorises another party to give the benefit on their behalf; and (b) the benefit is given by the client, or on behalf of the client, including from one or more financial products in which the client has rights or benefits. This can include, for example, where a benefit is paid out of a premium paid by a client. Note: See paragraph 1.258 of the Revised Explanatory Memorandum to the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Revised Explanatory Memorandum). RG 246.42 In receiving the benefit, it will also be necessary for the licensee or representative to ensure compliance with the other obligations under the Corporations Act that apply to the provision of advice to the client. Page 18 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 18 Note: See RG 36, RG 175 and RG 244 for guidance on complying with the additional obligations that apply to the provision of advice including the best interests duty. Authorised by the client RG 246.43 When a benefit is given by another party on behalf of the client, that benefit must be ‘authorised’ by the client: see s963A(2). RG 246.44 We will administer the law on the basis that a benefit has been authorised by a client if the benefit is given at the client’s direction or with their clear consent. In our view, consent is ‘clear’ if it is genuine, express and specific. Mere knowledge of the benefit, or agreement to proceed with financial services in light of a disclosure about the benefit, is not clear consent. Note: A benefit is not given by a client if it is provided at the instruction of the product issuer or seller—see paragraph 1.259 of the Revised Explanatory Memorandum to the Treasury Laws Amendment (Delivering Better Financial Outcomes and Other Measures) Bill 2024 (Revised Explanatory Memorandum). RG 246.45 A client will not be considered to have given clear consent if the consent was not clearly and expressly sought. For example, where consent has been sought as part of a broad range of terms and conditions agreed by the client in aggregate rather than in a separate and distinct section of the terms and conditions, clear consent would not have been provided. RG 246.46 If a client has withdrawn their consent to the benefit, future benefits arising from the original consent are not authorised. Client’s own funds RG 246.47 For a benefit to be given by a client and not be conflicted remuneration, the benefit must also have been given by the client using the client’s own funds. Benefits given by third parties that are borne out of their own funds are not benefits given by the client. RG 246.48 Below are some examples of benefits that are not covered by s963A(1)(b) and are thus considered to be conflicted remuneration. Example 3: Benefits that are not covered by s963A(1)(b) (conflicted remuneration) Scenario 1 Payments are made to a financial adviser by a responsible entity or platform operator from fees received by the responsible entity for operating a registered managed investment scheme (registered scheme) or by the platform operator for administering a platform. These are a benefit given by the responsible entity or platform operator out of their fees. Page 19 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 19 Scenario 2 Payments are made to a financial adviser by a margin lender from interest the margin lender charges and receives from its loan holders. These are a benefit given by the margin lender out of the interest the lender receives. Commentary In both scenarios, the benefits are not given by the client in relation to financial product advice or a service provided by the licensee or authorised representative, even if consented to by the client. The benefits, therefore, are not covered by s963A(1)(b) and we would consider them to be conflicted remuneration. Passing on client benefits RG 246.49 Subject to RG 246.51, third parties (such as trustees of registrable superannuation entities and responsible entities of registered schemes) may, with the client’s consent, direct the client’s funds to an AFS licensee or its representatives. RG 246.50 In addition, an AFS licensee may: (a) subsequently pass on the benefit, or a portion of the benefit, to one of its authorised representatives or other representatives; or (b) pass on the benefit, or a portion of the benefit, to an authorised representative, and the authorised representative may pass on the benefit, or a portion of the benefit, to another representative of the licensee (e.g. an employee of the authorised representative). RG 246.51 However, the benefit will be conflicted remuneration if an AFS licensee or authorised representative that passes on a benefit has discretion over the portion of the benefit that is passed on. In this situation, we do not consider that the benefit has been given at the client’s direction or with their clear consent: see RG 246.43–RG 246.46. Example 4: Fees agreed through an application form (not conflicted remuneration) Scenario A product issuer issues financial products to clients through a third-party AFS licensee whose representatives provide personal advice and general advice to clients in relation to managed investment schemes. The application form for the product provides space for the client, or the AFS licensee on behalf of the client and with the client’s specific authority, to indicate the fee the client has agreed that the licensee will receive for any advice provided. Before the client signs the application form, the representative of the licensee tells the client that they are authorising the licensee to receive the fees set out in the application form. The application form states that the fee paid by the client to the AFS licensee will be collected by the product issuer as agent of the licensee. The fee will Page 20 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 20 then be sent by the product issuer to the licensee. The form also includes a section for the licensee to consent to this arrangement. Commentary We consider that s963A(1)(b) applies to the fee collected by the product issuer and passed on to the AFS licensee. The client specified the fee and authorised the product issuer to collect the fee from the client on behalf of the licensee. Therefore, the fee is not conflicted remuneration. Example 5: Benefits given to an authorised representative (not conflicted remuneration) Scenario An authorised representative is self-employed as a financial adviser and gives advice to clients. Clients pay fees to the AFS licensee for the advice the representative provides to the client on behalf of the licensee. These fees are a combination of flat fees (e.g. $2,000) and asset-based fees. The AFS licensee passes 90% of all fees received from the client to the authorised representative. The authorised representative also employs three other financial advisers who are representatives of the AFS licensee. Commentary The following benefits are not conflicted remuneration: • the fees received by the AFS licensee from the client; • the portion of the fees from the client that the licensee passes on to the authorised representative, provided that the client has authorised this and the licensee has no discretion over the portion of the benefit that is passed on; and • any fee the authorised representative passes on to representatives of the licensee that they employ, provided that the client has authorised this and the authorised representative has no discretion over the portion of the benefit that is passed on. These benefits are not conflicted remuneration because they are given by a client for the provision of advice: see s963A(1)(b) and RG 246.39– RG 246.51. Client-directed fees from superannuation funds RG 246.52 A benefit is not conflicted remuneration where it is: (a) given to the AFS licensee or an authorised representative of a licensee by a trustee of a superannuation fund; Page 21 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 21 (b) given in relation to financial product advice that is personal advice, which is provided by the licensee or authorised representative to a retail client, about the client’s interest in the fund; and (c) charged against the client’s interest in the fund, or against the interests of the client and other members of the fund (see s963B(1)(bb)). RG 246.53 In giving the benefit, the trustee will need to ensure compliance with the relevant obligations under the Superannuation Industry (Supervision) Act 1993 (SIS Act) and the Income Tax Assessment Act 1997. This includes compliance with s99FA of the SIS Act, which outlines the requirements to be satisfied before the trustee can charge the cost of advice against the client’s interest in the fund and specifically provides that s52(2)(c) and s62 of the SIS Act continue to apply. Note: Information Sheet 287 FAQs: Non-ongoing fee requests or consents (INFO 287) provides guidance on the consent requirements when charging personal advice costs to a client’s superannuation account. General and consumer credit insurance commissions RG 246.54 Monetary benefits given to an AFS licensee or an authorised representative of a licensee for certain general insurance products and consumer credit insurance are not conflicted remuneration: see s963B and s963BB. Note: An exclusion also applies for monetary benefits in relation to life risk insurance products, see Section D. RG 246.55 Non-monetary benefits given to an AFS licensee or an authorised representative of a licensee in relation to a general insurance product are also not conflicted remuneration: see s963C(1)(a). RG 246.56 The exclusion from the conflicted remuneration provisions for these products will only apply to personal advice situations if the client gives their informed consent to the monetary benefit being given: see s963BB(1) and RG 246.58. Note: Informed consent requirements apply to benefits given on or after 9 July 2025, in relation to insurance products issued or sold on or after that date (except renewals of general insurance products originally issued before this date). RG 246.57 Section 145 of the National Credit Code (Sch 1 to the National Consumer Credit Protection Act 2009) also sets limitations on the amount of commission paid by an insurer in connection with consumer credit insurance taken out by a debtor. The total of any commission accepted by the credit provider, supplier or an agent of the credit provider or supplier must not exceed 20% of the premium. Page 22 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 22 Informed consent requirements RG 246.58 If an AFS licensee or their representative provides, or is likely to provide, personal advice to a retail client in relation to a life risk insurance, general insurance or consumer credit insurance product, a monetary benefit given in connection with the issue or sale of the product will be conflicted remuneration unless the AFS licensee or representative first obtains the client’s informed consent to the monetary benefit being given: see s963BB. Note 1: Information Sheet 292 FAQs: Informed consents for insurance commissions (INFO 292) provides guidance on the requirements that must be met in relation to informed consent. This includes disclosing certain information to the client before informed consent is given and record-keeping requirements. It also provides guidance on good practice for informed consent. Note 2: Informed consent requirements apply to benefits given on or after 9 July 2025, in relation to insurance products issued or sold on or after that date (except renewals of general insurance products originally issued before this date). ‘Buyer of last resort’ arrangements RG 246.59 Arrangements for the purchase of a financial advice business in the future are sometimes called ‘buyer of last resort’ arrangements. RG 246.60 A monetary benefit (purchase price) payable for a financial advice business is not conflicted remuneration if: (a) the benefit is given to an AFS licensee or its representative; (b) the benefit is paid as part of the purchase or sale of all or part of the licensee’s or representative’s financial advice business; and (c) the price of the financial advice business is calculated using a formula: (i) that is based, in whole or in part, on the number or value of all or part of the financial products held by the licensee’s clients or the representative’s clients; and (ii) in which the weighting attributed to the financial products issued by the licensee, a related body corporate, or other person is the same as the weighting attributed to other similar financial products (see reg 7.7A.12EA). Note: Similar exclusions apply when a monetary benefit is given to an AFS licensee or its representative as part of the purchase or sale of all, or part of, the licensee’s or representative’s business in relation to information on, or dealing in, a life risk insurance product. See Appendix 1 for further information. RG 246.61 We consider that financial products are similar if they perform broadly the same function. Whether financial products are similar depends on the circumstances. RG 246.62 In particular, we will scrutinise arrangements where different weightings are attributed to different financial products so that products issued by a Page 23 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 23 particular issuer or issuers, or issuers in a particular corporate group or groups, are given more weight. RG 246.63 If this exclusion, or another exclusion from the ban on conflicted remuneration, does not apply to the purchase or sale of an AFS licensee’s or representative’s financial advice business, the agreement to purchase at the relevant price may be conflicted remuneration if it could reasonably be expected to influence advice given to a client. Benefits with a small value RG 246.64 A non-monetary benefit is not conflicted remuneration if: (a) its value is less than $300 for each AFS licensee or its representative that is the final recipient of the benefit, and (b) identical or similar benefits are not given on a frequent or regular basis: see s963C(1)(b) and reg 7.7A.13. Note: Similar exclusions apply when the benefit relates to information on, or dealing in, a life risk insurance product. See Appendix 1 for further information. RG 246.65 If a benefit is given to an AFS licensee and the licensee passes on this benefit to a representative, the representative is the final recipient of the benefit. If the licensee keeps half of a benefit and passes on the other half to a representative, the licensee is the final recipient of half of the benefit and the representative is the final recipient of the other half. RG 246.66 The $300 limit applies to a non-monetary benefit given in a single event, taking into account that the exclusion will not apply if identical or similar benefits are given on a frequent or regular basis. RG 246.67 An AFS licensee must keep records of non-monetary benefits with a value of between $100 and $300 that are given to the licensee or any of its representatives: see reg 7.8.11A. RG 246.68 We use the amounts in regs 7.7A.13 and 7.8.11A as a guide in considering when we are more likely to scrutinise a monetary benefit to determine whether it is conflicted remuneration. RG 246.69 Accordingly, we are more likely to scrutinise monetary benefits to determine whether they are conflicted remuneration if: (a) for benefits that are given on a frequent or regular basis: (i) the value of each benefit is over $100; and (ii) the combined value of all benefits is greater than $300 for each AFS licensee or representative that is the final recipient of the benefit; or Page 24 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 24 (b) for benefits that are not given on a frequent or regular basis, the value of the benefit is greater than $300 for each licensee or representative that is the final recipient of the benefit. RG 246.70 We consider that the benefits in RG 246.69 are more likely to influence the advice given. Passing on excluded benefits RG 246.71 When an excluded benefit is passed on, or reflected in a benefit given to another AFS licensee or its representatives that provide advice to clients, this is a separate benefit. This is because the circumstances in which the separate benefit is given are different from the circumstances in which the excluded benefit was given. RG 246.72 The separate benefit does not automatically continue to be excluded from the ban on conflicted remuneration. It is only excluded if it satisfies the conditions of an exclusion, or could not reasonably be expected to influence the advice provided by the AFS licensee or its representatives that receive the benefit. RG 246.73 For example, asset-based fees paid by clients to an AFS licensee for advice provided by a representative on behalf of the licensee are not conflicted remuneration: see s963A(1)(b). However, this does not necessarily mean that a performance benefit or other benefit paid by the licensee to the representative, based on the increase in asset-based fees paid by the representative’s clients, is excluded from the ban on conflicted remuneration. RG 246.74 If no exclusion applies, the performance benefit or other benefit will be conflicted remuneration if it could reasonably be expected to influence the advice provided by the representative: see Example 8. Page 25 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 25 D Exclusions in relation to life risk insurance products Key points There are specific exclusions from the ban on conflicted remuneration for benefits that are given in relation to life risk insurance products and that do not influence the advice given to a client. Commissions in relation to life risk insurance that satisfy the ‘benefit ratio’ and ‘clawback’ arrangements are also not considered to be conflicted remuneration. Benefits that do not influence information given to a client RG 246.75 Benefits relating to information given on, or dealing in, a life risk insurance product are not conflicted remuneration if they could not reasonably be expected to influence: (a) whether the AFS licensee or its representative gives information to a person or deals in a life risk insurance product; or (b) the way in which the licensee or its representative presents the information about, or deals in, a life risk insurance product (see regs 7.7A.11C and 7.7A.11D). Note: The examples in RG 246.32–RG 246.38 and the principles in Section E and Section F are also relevant when determining whether a benefit is conflicted remuneration because it may influence the information given on, or dealing in, a life risk insurance product. Commissions that satisfy the ‘benefit ratio’ and ‘clawback’ arrangements RG 246.76 A monetary benefit relating to a life risk insurance product is not conflicted remuneration if: (a) it is the same for the year in which the product or products are issued as it is for each year in which the product or products are continued (i.e. a level commission); or (b) it satisfies the ‘benefit ratio’ and the ‘clawback’ arrangements (see s963B(1)(b) and regs 7.7A.11C(1)(b) and 7.7A.11D(1)(b)). RG 246.77 In addition, if an AFS licensee or their representative provides, or is likely to provide, personal advice to a retail client in relation to certain life insurance products, general insurance or consumer credit insurance products, a Page 26 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 26 monetary benefit given in connection with the issue or sale of the product will be conflicted remuneration unless the AFS licensee or representative first obtains the client’s informed consent to the monetary benefit being given: see s963BB(1) and RG 246.58. Note 1: INFO 292 provides guidance on the requirements that must be met in relation to informed consent. This includes disclosing certain information to the client before informed consent is given and record-keeping requirements. It also provides guidance on good practice for informed consent. Note 2: Informed consent requirements apply to benefits given on or after 9 July 2025 and that were given in relation to insurance products issued or sold on or after that date (except renewals of general insurance products originally issued before this date). The benefit ratio and clawback arrangements are determined by ASIC and are set out in ASIC Corporations (Life Insurance Commissions) Instrument 2017/510. The commission cap in the first year is set at 60% of the policy cost (i.e. upfront commission), and 20% of the policy cost after the first year (i.e. trailing commission): see section 5(2) and (3) of the instrument. RG 246.78 The exclusion does not apply to monetary benefits relating to the following products: (a) a group life risk policy inside superannuation, whether it is for a default superannuation fund or another type of superannuation fund; and (b) an individual life insurance policy for the benefit of a member of a default superannuation fund. RG 246.79 Depending on the circumstances, a commission given to an AFS licensee or its representative may or may not include GST. When a commission includes a GST component, the GST component is not intended to be a benefit for the purposes of the ban on conflicted remuneration: see paragraph 1.29 of the Explanatory Memorandum to the Corporations Amendment (Life Insurance Remuneration Arrangements) Bill 2016 (Explanatory Memorandum). Acceptable benefit ratio Upfront commission given when there is a client-initiated increase RG 246.80 When there is action taken by the client that results in an increase in the policy cost, the commission cap is 60% of the increase in the policy cost for the 12 months after the increase, and 20% of the increase in the policy cost after the first 12 months: see section 5(4) and (5) of ASIC Instrument 2017/510. Note: A client-initiated increase is defined in section 4 of the instrument and includes matters such as the policy holder agreeing to an increase in the sum insured or that the premium basis should change from a stepped premium to a level premium. Page 27 REGULATORY GUIDE 246: Conflicted and other banned remuneration © Australian Securities and Investments Commission November 2024 Page 27 Example 6: Calculating the acceptable benefit ratio with a client- initiated increase A life risk insurance product is issued with a policy cost for the year of $1,000. An acceptable benefit ratio for a benefit provided to an AFS licensee or its representative for the initial 12-month period is 0.6 (i.e. the maximum commission payable is 60% of the policy cost). Accordingly, the allowable commission is no more than $600. The policy holder decides to continue the product into a second year and to increase the sum insured. The policy cost for the second year increases to $1,200, with $150 of the increase being because of the decision to increase the sum insured and the remaining $50 because of a CPI increase to the sum insured. The $150 is a client-initiated increase and an acceptable benefit ratio of 0.6 applies for a benefit provided for the second year in relation to the $150 increase. Therefore, a benefit of up to $90 may be given in relation to this increase. An acceptable benefit ratio of 0.2 applies for a benefit provided for the second year in relation to the $1,050 balance of the policy cost. Therefore, a benefit of up to $210 may be given in relation to the $1,050 balance of the policy cost. Accordingly, the maximum total benefit that may be given for the second year is $300. Commission for a client-initiated increase that occurs part way through a year RG 246.81 Table 3 provides the method for calculating the allowable upfront and trailing commission in relation to an increase in the policy cost if the client-initiated increase occurs part way through the year. Table 3: Calculating the commission for a client-initiated increase that occurs part way through a year Commission Method Upfront commission Calculate the maximum allowable commission in relation to the annual increase in policy cost following the client-initiated increase—that is: Total annual client-initiated increase x 0.6 For example, for a client-initiated increase that resulted in an increase in the policy cost of $250 a year where the client-initiated increase occurred 292 days into the first year, the allowable commission would be $150 (i.e. $2