Incentives for those advising consumer clients, as opposed business clients, will change on 31 March 2025 when the Conduct of Financial Institutions legislation (CoFI) comes into play.
While CoFI primarily impacts banks, NBDTs, and insurance companies, any FAP deemed to be a financial intermediary for a financial institution will be caught by CoFI incentive rules, states industry training firm Strategi.
Under the incoming rules, banks, insurance companies and NBDTs (financial institutions) cannot pay an intermediary (FAP), and a FAP cannot pay its advisers a ‘prohibited incentive’.
A prohibited incentive includes targets that relate to the volume or value of the services or products offered. However, this only applies when the products or services are for retail consumers. Commissions have not been prohibited under CoFI.
A FAP can pay its advisers a commission with an incentive, provided it is calculated on a linear basis. A linear structure is where a fixed commission percentage is paid for all sales.
It is also permissible to have one direct reference to a target or other threshold that relates to the volume or value of the relevant services or associated products.
Strategi states that making changes to remuneration structures takes time, and should be discussed with staff. The firm advises that when designing incentives, ensure they incentivise more than just sales/revenue.