In Australian Securities and Investments Commission v R M Capital Pty Ltd [2024] FCA 151 the Federal Court of Australia decided that R M Capital Pty Ltd (RM Capital) failed to take reasonable steps to ensure that its authorised representative, the SMSF Club Pty Ltd (SMSF Club), did not accept conflicted remuneration which contravened section 963G of the Corporations Act.

ASIC’s case alleged that SMSF Club advised its clients to set up self-managed superannuation funds (SMSFs) to buy real property marketed by real estate agent, Positive RealEstate Pty Ltd (Positive RealEstate).

ASIC alleged that between December 2013 and July 2016 and pursuant to referral agreements, Positive RealEstate paid SMSF Club around $5,000 each time a client bought a property through them using their SMSF.

ASIC contended that SMSF Club contravened section 963G of the Corporations Act by accepting payments from Positive RealEstate, and RM Capital contravened s963F of the Corporations Act by failing to take reasonable steps to ensure SMSF Club did not accept the payments.

Pursuant to section 963F of the Corporations Act, an Australian financial services licensee must take reasonable steps to ensure that its representatives do not accept conflicted remuneration.

Conflicted remuneration is any benefit that could reasonably be expected to influence either the choice of financial product recommended by the licensee or representative or the financial product advice given by the licensee or representative to retail clients.

RM Capital argued that it did take reasonable steps to ensure that its authorised representatives did not accept conflicted remuneration as follows:

• First, RM Capital only allowed authorised representatives to provide financial advice relating to products on its approved products list, and RM Capital reviewed financial products prior to adding them to that list for consistency with relevant legislation, including the conflicted remuneration ban.
• Second, RM Capital only appointed ‘apparently appropriate’ persons as authorised representatives. It did this through its Representative and Human Resources Policy, which required various checks into those seeking to become authorised representatives, including checking that the applicants had industry knowledge. RM Capital noted that the conflicted remuneration ban was well-known, implying that if applicants had industry knowledge, then it was likely that they would be aware of the conflicted remuneration ban.
• Third, RM Capital periodically audited its authorised representatives and also monitored their remuneration by having remuneration payments made to RM Capital, rather than directly to the authorised representatives, and reviewing those remuneration payments regularly.
• Fourth, RM Capital had a requirement for ongoing training and education by representatives, which included specific training and education on the FOFA reforms and the conflicted remuneration ban.

Nevertheless Justice Jackson concluded:

“the capacity that RM Capital had under its standard form agreement to prevent authorised representatives from promoting or advising on unsuitable financial products, to require them to comply with its policies and procedures, and to require representatives to have a sound working knowledge of the law, was insufficient to constitute reasonable steps, either by itself or together with the other measures taken. “

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Author: David Jacobson
Principal, Bright Corporate Law
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The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.