Boutiques call for sweeping changes

TheAssociation of Independently Owned Financial Planners (AIOFP) has released a position paper slamming the industry over conflicts of interest and calling for greater levels of disclosure, a standardisation of fees and an end to soft dollar inducements for financial planners.

The group says the conflicts of interest issue is a “major structural problem in the industry” and the three areas of change are essential if the industry wants to avoid continued damage to the public’s perception of the industry.

AIOFP chief executive Peter Johnston says the group is calling for all planners to charge and receive the same rate of brokerage or fees to all clients and for all comparable investment products, which would remove any form of bias.

“We think every client should be charged a percentage and it should be the same, then there can’t be any argument that money is moved into a product because it pays advisers more commission.”

Johnston also says financial planners should notify clients of the legal owners of the licence the adviser is representing and any possible impacts this may have on the advice they receive.

The group has additionally called on industry funds to be subjected to full disclosure on all fees and charges to members and in particular “off balance sheet” fund manager charges that are not included in the total expense ratio reported to members.

The association is also critical of soft dollar inducements and says that unless there is a genuine training element involved, then planners should refuse to accept any offer and the cost of such offerings should instead go towards reducing the costs of funds management to consumers.

Johnston argues the ongoing trend of financial institutions purchasing or establishing their own financial planning practices and funds management divisions is creating conflicts of interest on a massive scale, and the industry has to take pre-emptive action or it will be forced to act by Government and legislators.

“For obvious commercial reasons, the financial institutions want their own financial planners to sell their own products to consumers. Recommended lists are manipulated, biased incentives for own product sales are rife and a lack of disclosure on fees and conflicts of interest are common,” Johnston says.

In a bid to promote self-regulation of the financial planning industry, the AIOFP is set to lobby Government and regulators on the issue. It plans to present its arguments to Government and peak industry regulators through its new joint national executive body, the National Boutique Executive (NBE), which will be launched later this year in conjunction with theAssociation of Financial Advisers(AFA).

The NBE will aim to standardise fees, increase levels of disclosure and reduce conflicts of interest.

“What financial planners and the industry have to realise is that there is huge momentum out there pushing for change and unless we do something in the form of self-regulation then we will be run over with a steamroller,” says Johnston.