Conflicted remuneration refers to benefits paid to financial advisers or their licensees that could reasonably be expected to influence the advice they provide to clients. The Future of Financial Advice (FOFA) reforms, introduced in 2013, banned conflicted remuneration for personal advice on financial products.
What is banned: Volume-based bonuses, product commissions on advice-related financial products (managed investments, superannuation, life insurance in some contexts), and soft dollar benefits from product issuers where these could influence advice.
What is not banned: Trail commissions on legacy products (subject to grandfathering rules), commissions on credit products (mortgages are credit, not financial products), referral fees that do not relate to financial product advice, and general insurance commissions.
Why this matters for mortgage referrals: Mortgage broking involves credit products, not financial products as defined under the Corporations Act. This means FOFA’s conflicted remuneration ban does not directly apply to referral fees paid to financial planners for mortgage introductions, provided the planner is not simultaneously providing financial product advice that is influenced by the referral arrangement.
However, financial planners must ensure that the receipt of a referral fee does not create a bias in their financial advice. The best interests duty requires that advice be demonstrably free from conflicting influences. Transparent disclosure and a clear separation between the referral and the advice process are essential.
