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ASIC, Financial Planning, Property

ASIC begins first conflicted remuneration case

SMSF; advice; conflicted remuneration

A Queensland SMSF advice business will face court in the first legal case dealing with conflicted remuneration related to financial advice.

ASIC has commenced court proceedings against an advice licensee and its SMSF advice business in relation to the acceptance of conflicted remuneration of more than $730,000 from a third-party real estate business.

In what will be the first case concerning an alleged breach of conflicted remuneration provisions under the Corporations Act, the corporate regulator has begun civil penalty proceedings in the Federal Court against Perth-based RM Capital as licensee and its authorised representative, The SMSF Club, based in Carrara, Queensland.

ASIC will contend The SMSF Club and RM Capital contravened the act on nearly 260 occasions each, with each contravention attracting a potential civil penalty of up to $1 million.

In bringing the case to court, the regulator alleged The SMSF Club advised clients to set up SMSFs and then use their fund to buy real property marketed by a real estate agent, Positive RealEstate, with which The SMSF Club had referral agreements, and that RM Capital was aware of these agreements.

Specifically, it has claimed each time, during the period from December 2013 to July 2016, a client of The SMSF Club used their fund to buy property marketed by Positive RealEstate, the latter paid around $5000 to The SMSF Club, either directly or to RM Capital, which passed on the majority to The SMSF Club.

In total, it alleged The SMSF Club received more than $730,000 in conflicted remuneration from Positive RealEstate.

The regulator said its case is that the payments could reasonably be expected to have influenced financial product advice given by The SMSF Club to its clients, and so constituted banned conflicted remuneration.

Additionally, it alleged RM Capital was aware of the payments and did not take reasonable steps to stop The SMSF Club from accepting them, and as the licensee, its failure to take reasonable steps to ensure The SMSF Club’s compliance also breached the law.

A hearing date has not been set, but ASIC will be seeking declarations of contravention, civil penalties and compliance orders against both RM Capital and The SMSF Club.

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