Are platforms the answer to conflicts of interest?

A submission by Professional Investment Services (PIS) to a parliamentary inquiry has pointed to the use of investment platforms as one way to mitigate potential conflicts of interest in the remuneration of financial advisers.

In its submission to the Parliamentary Joint Committee inquiry into financial products and services, the group said potential conflicts of interest are “inherent in all remuneration models, irrespective of whether a commission or a fee-based model is utilised”.

The group argued that in many circumstances it is not the remuneration structure that creates a potential conflict of interest, but “rather the conflict of excessive financial gain”.

This potential conflict can exist irrespective of the remuneration model, the group said, pointing to Storm Financial as an example where clients paid upfront fees, but where advisers were potentially influenced by the benefit to be gained from increasing the client’s funds under management.

One possible way to mitigate conflicts of interest in the provision of investment advice is through the use of platforms, the group argued.

“Generally speaking, the client and the adviser agree on an adviser service fee, which is deducted regularly from the client’s account,” PIS’ submission stated.

“This is important in determining any conflict of interest; only the platform provides a potential conflict as no investments actually pay a commission to the adviser. To this extent, platforms serve to mitigate and reduce remuneration conflicts of interest.”

The PIS submission pointed to the fact that investment platforms are widely used, saying “it is estimated that some 80 per cent of all investment transactions take place through platforms”.

Investment platforms are administration systems that manage and report on a range of investment products that are generally lower cost than ordinary retail products.