Bonuses, referrals can be FASEA compliant

In a recent video presentation, myIntegrity in Practice principal Joel Ronchi said advice practitioners were often under the impression that remuneration types such as bonuses and referral fees were not compliant with the FASEA code of ethics, but this was not necessarily the case.

Advisers would be able to pay and receive bonuses as long as they could objectively conclude that it was not influencing the advice they or any of their staff were giving, Mr Ronchi said.

“In the example of a performance bonus, the question isn’t the bonus itself, the question is what is the basis of the calculation of the bonus,” he said.

“If it’s a scorecard approach that might be a combination of client survey feedback, compliance audit outcomes, culture surveys, and there might be something linked to product, but if it is a balanced scorecard where that performance is independent of specific pieces of advice to individual clients, there is no issue.

“If the bonus is an expressly volume-based thing, it’s most likely going to be a conflict. If it’s a 30 per cent bonus directly tied to how much money you put into an MLC product and all of a sudden all advice is going into an MLC product, you could argue it’s driving the advice and in that situation there is a conflict.”

Mr Ronchi said the same principle applied to referral fees, where as long as they were not influencing the advice being given to the client, the fees could be considered compliant with Standard 3.

“It’s the circumstances behind it that’s important, and how it’s influencing that specific piece of advice to that client for which you are receiving that referral fee,” he said.

“If the fee is not driving the advice there’s no conflict, providing you’re acting in the client’s best interest, providing appropriate advice and giving advice warnings if needed.

“You’re looking at the relationship between the referral partner and the adviser. What impact on the advice does the relationship have?

“Is it a commercial relationship for the benefit of everyone [in the firm] that doesn’t drive specific pieces of advice, or is the referral arrangement such that it motivates and drives pieces of advice so that the adviser is providing advice in order to generate that referral fee? That’s what you need to ask yourself when you’re looking at Standard 3.”