An AFSL Holder’s Guide to Conflicted & Banned Remuneration Under RG 246

Introduction

The ban on conflicted remuneration is a cornerstone of financial advice regulation in Australia, designed to remove the influence of product issuers on the financial product advice given to retail clients. Mandated under Part 7.7A of the Corporations Act 2001 (Cth), these rules ensure that the interests of a financial adviser and their clients are more closely aligned. For any Australian Financial Services (AFS) licensee, navigating these remuneration provisions is a critical compliance area, as this remains a major enforcement priority for ASIC, often leading to AFSL audits and investigations, and carries severe penalties for breaches.

For a licensee and its authorised representatives, understanding the complexities of conflicted and other banned remuneration is essential for building a compliant and trustworthy business. This guide provides practical, plain-English information to help you navigate the rules outlined in ASIC’s Regulatory Guide 246 (RG 246). It offers a clear framework for assessing benefits and maintaining compliant remuneration structures for the financial services you provide.

Understanding Conflicted Remuneration

The Legal Definition of Conflicted Remuneration

The ban on conflicted remuneration is established in Division 4 of Part 7.7A of the Corporations Act 2001 (Cth). Section 963A outlines what constitutes conflicted remuneration in the financial services industry.

This section defines conflicted remuneration as benefits (monetary or non-monetary) given to financial services licensees or their representatives that could reasonably influence the financial product advice provided to retail clients. The definition specifically excludes benefits paid directly by retail clients for services they receive.

The legislation focuses on the potential for influence rather than proving actual influence occurred. The Corporations Act 2001 (Cth) provides specific criteria for determining when remuneration is considered “conflicted” through its detailed provisions.

What This Means in Practice

Conflicted remuneration refers to any payment or benefit that might incentivise an AFS licensee or representative to recommend financial products based on their own financial interests rather than the client’s best interests.

The “reasonable expectation” test is central to identifying conflicted remuneration. This objective assessment examines whether a benefit, by its nature or the circumstances of its provision, could potentially influence the advice given—regardless of whether it actually did influence the adviser.

The prohibition encompasses various forms of benefits, including:

Benefit Type	Examples
Monetary Benefits	Commissions, volume-based bonuses, performance-based incentives, and other cash rewards.
Non-Monetary (“Soft Dollar”) Benefits	Subsidised business equipment, hospitality, marketing assistance, and travel perks.

When a product issuer or third party offers benefits that could potentially affect an adviser’s recommendations, these are typically classified as conflicted remuneration and are prohibited under the legislation.

Common Examples of Banned Benefits

Volume-Based Bonuses & Payments

Payments linked to the volume or value of financial products are a primary target of the ban on conflicted remuneration. Under section 963L of the Corporations Act 2001 (Cth), these types of benefits are legally presumed to be conflicted remuneration unless proven otherwise. This presumption exists because such payments create a direct financial incentive for an adviser or licensee to prioritise sales volume over the client’s best interests.

Licensees must be vigilant in identifying and avoiding these arrangements, which can include:

Type of Payment	Description
Commissions	Both upfront and trailing commissions paid by a product issuer to an AFS licensee based on the sale of investment or superannuation products.
Volume-based payments from platform operators	Platform operators are prohibited from giving benefits to licensees that depend on the number or value of financial products recommended or acquired by retail clients.
Sales-based incentives	Performance bonuses for advisers that are directly calculated by reference to the value or number of financial products they recommend or that their clients acquire.
Product-specific payments	Higher commission rates or other payments received for recommending one financial product over another, potentially less suitable, alternative.

Soft Dollar Benefits & Incentives

The ban on conflicted remuneration extends beyond direct monetary payments to include non-monetary or “soft dollar” benefits. These are perks or incentives that could still reasonably be expected to influence financial product advice.

ASIC has made it clear that it assesses the substance of a benefit over its form, meaning that simply relabelling a prohibited incentive will not make it compliant.

Common examples of banned soft dollar benefits include:

Benefit Type	Description
Subsidised business support	Product issuers providing free or subsidised business equipment, services, or even office space to an advisory firm.
Hospitality and entertainment	Benefits such as tickets to exclusive sporting events, lavish meals, or extravagant hospitality provided by a product issuer are typically considered conflicted.
Incentivised travel	All-expenses-paid trips to overseas conferences or luxury retreats offered as a reward for high sales volumes are almost always banned.
Marketing and promotional assistance	Support from a product issuer for an adviser’s marketing campaigns can be conflicted if linked to product sales or recommendations.
Sales-based recognition	Awards, shares, or other interests given by a product issuer to recognise an adviser based on the volume of products sold.

A Scenario Analysis of Soft Dollar Benefits

Genuine Education vs. Banned Inducements

“Soft dollar” benefits are non-monetary benefits provided by product issuers that can create a conflict of interest for an AFS licensee or its representatives. These benefits fall into a compliance grey area, as they can range from acceptable business support to banned inducements that could reasonably be expected to influence financial product advice.

The key distinction lies in whether the benefit has a genuine education or training purpose, or if it is primarily entertainment or a reward. ASIC will look at the substance over the form of a benefit, meaning that simply relabelling a reward as “training” will not be sufficient if its primary purpose is to influence an adviser.

A benefit is more likely to be considered a genuine educational tool if it is directly relevant to providing financial services. Conversely, a benefit is likely to be considered a banned inducement if it:

• Includes significant hospitality
• Is held in a luxury or holiday destination
• Is tied to sales targets

Non-monetary benefits may be excluded from the conflicted remuneration ban if they have a genuine educational or training purpose relevant to carrying on a financial services business. However, for this exemption to apply, the adviser or their employer must typically pay for any associated travel and accommodation costs.

Practical Scenarios for Your AFSL

To help your AFS licensee navigate this complex area, the following table provides a practical analysis of common soft dollar scenarios. This framework helps assess whether a benefit is likely to be considered conflicted remuneration under the Corporations Act 2001 (Cth).

Scenario	Benefit Description	Likely Status	Why?
1: The Conference Trip	A fund manager offers to pay for an adviser’s flights and accommodation to attend a generic industry conference in a popular holiday destination.	Likely Conflicted	The benefit is not directly related to providing better advice on a specific product. It serves as an inducement that could reasonably be expected to influence the adviser to recommend the fund manager’s financial products.
2: Essential Product Training	A platform provider hosts a half-day workshop in the adviser’s city to provide essential technical training on new features critical for providing financial product advice. A simple lunch is provided.	Likely Acceptable	The dominant purpose is genuine education that is relevant and necessary for providing competent advice. The hospitality is modest and incidental to the training, making it unlikely to influence the adviser.
3: The Exclusive Retreat	An insurer invites top-performing advisers to an exclusive two-day “educational retreat” at a five-star resort, with brief morning sessions followed by golf or spa treatments in the afternoon.	Likely Conflicted	Although there is an educational component, the significant hospitality and entertainment value suggests the real purpose is to reward and influence high-volume advisers, creating a clear conflict of interest.
4: Subsidised Equipment	A fund manager provides free iPads to every adviser who places over $2 million of client funds into their financial products during a specified quarter.	Likely Conflicted	This is a volume-based benefit directly tied to sales. The incentive could reasonably be expected to influence an adviser to recommend the fund manager’s products to meet the threshold, regardless of the client’s best interests.

Other Banned Remuneration to Avoid

Asset-Based Fees on Borrowed Amounts

Division 5 of Part 7.7A of the Corporations Act 2001 (Cth) establishes a specific ban on charging asset-based fees on borrowed funds. This prohibition prevents AFS licensees and their representatives from calculating fees as a percentage of money that clients have borrowed to invest in financial products.

The legislation was introduced to eliminate incentives for advisers to recommend gearing or leverage strategies simply to increase their fees. For example:

• If a client has a $500,000 portfolio where $100,000 was borrowed, an adviser can only charge an asset-based fee on the client’s $400,000 contribution.
• This ban applies regardless of whether the adviser arranged the loan or the client initiated the borrowing independently.

Volume-Based Shelf-Space Fees

The regulations also specifically prohibit platform operators from accepting volume-based shelf-space fees from fund managers. A shelf-space fee is a payment made by a product issuer to a platform operator in exchange for making the issuer’s financial products available through that platform.

This type of fee is considered banned remuneration when its value depends wholly or partly on:

• The total number of the fund manager’s financial products held through the platform
• The total value of the fund manager’s financial products held through the platform

The purpose of this rule is to prevent arrangements where product issuers can pay for preferential treatment or visibility, which could create a structural bias in the products offered to retail clients.

Permitted Remuneration & Key Exemptions

Client-Paid Benefits & Fee-for-Service Models

The ban on conflicted remuneration does not apply to benefits given to a licensee or representative by a retail client for the financial product advice or service they receive. This exemption forms the foundation of compliant fee-for-service models, where clients pay advisers directly for their expertise.

For this exemption to apply, the benefit must be genuinely paid by the client from their funds. Recent amendments to the Corporations Act 2001 (Cth) have clarified this rule. A benefit is not considered conflicted remuneration if:

• It is given directly by the retail client or authorised by the client to be given by a third party, such as a product issuer
• The payment is funded by the client’s own money, even if it comes from a financial product they hold
• The benefit is not provided at the instruction of the product issuer or seller

For example, advice fees paid by a trustee of a regulated superannuation fund from a member’s account are not conflicted remuneration, provided this is done at the member’s clear and specific direction.

Specific Exemptions for Insurance Products

The Corporations Act 2001 (Cth) provides specific carve-outs for benefits related to certain insurance products, although these are subject to strict conditions.

Life Risk Insurance Products: Commissions for advice on life risk insurance products are permitted, but are regulated by the Life Insurance Framework (LIF). These rules include:

LIF Rule	Specification
Upfront Commission Caps	Capped at a maximum of 60% of the premium in the first year.
Ongoing Commission Caps	Capped at a maximum of 20% of the premium in subsequent years.
Clawback Provisions	Mandatory clawback provisions apply if a policy is cancelled within the first two years.

General and Consumer Credit Insurance: Benefits given in relation to general insurance products and consumer credit insurance are generally exempt from the ban on conflicted remuneration.

From 9 July 2025, a new informed consent requirement will apply to monetary benefits for personal advice on life risk, general, and consumer credit insurance. A licensee or representative must obtain the client’s clear, written consent before receiving the commission.

Other Notable Exemptions for AFSLs

Beyond client-paid fees and specific insurance arrangements, the law permits several other types of benefits, provided they meet strict criteria. These exemptions are narrow and require careful assessment by your AFS licensee.

Other notable exemptions include:

Exemption	Description
Minor Non-Monetary Benefits	A non-monetary benefit is not conflicted if its genuine value is less than $300 per employee from a single provider, and it is not given on a frequent or regular basis.
Genuine Education or Training	Benefits with a genuine educational or training purpose that is relevant to providing financial services may be acceptable. The adviser or their employer must typically pay for associated travel and accommodation.
IT Software and Support	Non-monetary benefits for IT software or support related to the provision of advice about products from the benefit provider can be exempt.
Execution-Only Services	Benefits received for services where no financial product advice is provided are not considered conflicted remuneration.
Basic Banking Products	Benefits related to advice on basic banking products are also excluded in certain circumstances.

A Compliance Checklist for Your Licensee

Assessing Influence & Volume Dependency

To determine if a benefit constitutes conflicted remuneration, your AFS licensee must conduct a thorough assessment. This process involves asking critical questions to evaluate whether the benefit could improperly sway the financial product advice given to retail clients. The core of this assessment is an objective test based on what a reasonable person would expect, not on the actual intent or influence.

When evaluating any benefit, consider the following key questions:

Assessment Test	Key Question
The Influence Test	Could the benefit reasonably be expected to influence the choice of financial products recommended or the advice provided?
The Volume Test	Is the benefit wholly or partly dependent on the volume or value of financial products recommended or acquired by clients?
The “But For” Test	Would the adviser or licensee receive this benefit “but for” the volume of business they direct to the product provider?
The Purpose Test	Is the dominant purpose of the benefit to reward sales, or is it for a legitimate business reason, such as genuine education?

Applying Exemptions & Documenting Decisions

If your initial assessment indicates a benefit is likely to be conflicted remuneration, the next step is to determine if any specific exemptions or “carve-outs” apply. The Corporations Act 2001 (Cth) provides for several narrow exceptions, and it is the licensee’s responsibility to prove that all legal criteria for an exemption are met.

Your compliance framework should include a clear process for applying these exemptions and documenting every decision:

Compliance Action	Description
Review Statutory Exemptions	Carefully check if the benefit falls under a specific carve-out, such as client-paid benefits, compliant insurance commissions, or minor non-monetary benefits.
Document Your Assessment	Maintain a clear and contemporaneous record of your evaluation to demonstrate to ASIC that you have taken reasonable steps to comply with the law.
Maintain a Benefits Register	Keep a central register of all non-monetary benefits received, particularly those valued between $100 and $300, to monitor frequency and cumulative value.
Implement Pre-Approval Processes	Internal policies should require compliance approval before any representative accepts a benefit from a third party, ensuring a formal assessment is conducted first.

Conclusion

Navigating the ban on conflicted remuneration is a critical compliance obligation for any AFS licensee, designed to ensure financial product advice is always in the best interests of retail clients. A compliant framework requires a thorough understanding of what constitutes a banned benefit, the nuances of soft dollar incentives, and the specific exemptions permitted under the Corporations Act 2001 (Cth).

To ensure your remuneration structures are fully compliant and can withstand regulatory scrutiny, contact the specialist AFSL compliance lawyers at AFSL House today. Our expert AFSL lawyers provide tailored compliance frameworks and guidance to help your financial services business turn these regulatory challenges into strategic opportunities.

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