AIA adds fuel to soft dollar debate

TheAustralian Investors Association(AIA) today called on the financial services industry to self regulate itself by outlawing all forms of soft dollar payments in a move negating the ongoing work of industry regulators and bodies on disclosure of such benefits.

“We are disappointed that the financial services industry continues to indulge in the unsavoury practice of extra commissions and incentives designed solely for the purpose of selling particular investments to consumers and do not feel that the industry's proposed guidelines for disclosure of 'soft dollar' payments and benefits is consumer friendly at all,” AIA president Bob Andrews says.

The proposed guidelines follow theAustralian Securities and Investments Commission(ASIC) releasing a report last week on soft dollar disclosure, which strongly criticized some firms for leaving clients ‘in the dark’ with disclosure that is vague or, in extreme cases, non-existent.

The AIA’s proposals would end the need for disclosure as they call on groups offering soft dollar commissions to immediately stop paying them and the recipients of soft dollar commissions, benefits and payments refusing to accept them.

“If the industry refuses to regulate itself, continues to defend the indefensible and attempt to justify such practices by disclosure only, then it is time for the consumer to show them what is an acceptable form of disclosure,” Andrews says.

Despite a wish to remove all soft dollar forms, the AIA acknowledges this is unlikely to occur overnight and proposes a secondary solution of product providers agreeing “to make simple, clear, dollar specific disclosure in all written communication to their clients and prospects”.

“We believe that it is entirely appropriate for the AIA to put forward a proposal for consideration and adoption by the industry as it is our members and the consumer in general who are the victims of soft dollar… We are pleased that our proposal is simple clear and easy to understand and follows in the spirit of theFinancial Planning Association’s own Rule 106 in their Rules of Professional Conduct,” Andrews says.

Late last year the FPA and the Investment and Financial Services Association (IFSA) released joint recommendations on soft dollar disclosure, which included the banning of practices such as product sale linked gifts and conferences, the establishment and maintenance of a public register for payments and receipts of appropriate transactions with a value greater than $300, and comprehensive disclosure in appropriate regulatory documents.

Last week the AIA clashed with the FPA after accusing the industry adviser association of making false and misleading statements and called on the Australian Competition and Consumer Commission (ACCC) to investigate it under the Trade Practices Act.

The FPA rejected the allegations as incorrect and misleading with FPA chief executive Kerrie Kelly stating the “AIA's implication that all financial planners are behaving inappropriately is wrong”.