The DBFO Act has clarified the conflicted remuneration provisions, with the changes having taken effect from 10 July 2024.

Client Pays Exemption

Prior to the DBFO Act, a benefit given to a licensee or its representative by a retail client was exempt from being ‘conflicted remuneration’ where the benefit was given in relation to:

• the issue or sale of a financial product by the licensee or the representative to the client; or

• financial product advice given by the licensee or representative to the client.

Ms Levy observed that the provisions setting this out were confusing. The provisions did not make it clear that the conflicted remuneration provisions were not intended by Parliament to apply when the benefit is provided by the client.

She recommended that the legislation be amended to clarify that benefits provided by retail clients to licensees, or their representatives are not conflicted remuneration under any circumstances, whether the benefit is a product fee, a transaction fee, or an advice fee.

Modified Definition

So, the definition of conflicted remuneration has now been changed.

Conflicted remuneration is any benefit (monetary or non-monetary), given to a licensee or a representative of a licensee, who provides financial product advice to retail clients that, because of the nature of the benefit or the circumstances in which it is given:

• could reasonably be expected to influence the choice of financial product recommended by the licensee or representative to retail clients; or

• could reasonably be expected to influence the financial product advice given to retail clients by the licensee or representative.

But the definition now has an additional limb:

So, if a retail client’s payment (or other benefit) to you is a payment (or other benefit) given in relation to a financial product or a financial service, it is now definitely not conflicted remuneration.

This change meant that a couple of provisions which attempted to have this effect and didn’t quite nail it have now been ejected from the Corporations Act 2001.

So What Now?

While these conflicted remuneration reforms don’t seem earth-shattering, we will update our policies and procedures in relation to conflicted remuneration to ensure they reflect these changes.

You can access the Conflicts of Interest Management Policy in the iC2 Compliance Hub.