Conflicts of interest: fee separation by Jan 07

Members of the Financial Planning Association (FPA) will be expected to separately disclose the cost of advice from the cost of an investment product to their clients from January 1, 2007 under the Principles for Managing Conflicts of Interest released this morning.

Regular disclosure of ongoing advice fees paid by a client, however, will not be required until January 1, 2008.

The requirement for all members to ensure that their advice properly suits the needs of their client must be adopted by July 1, 2006.

“In adopting a principles-based approach, the FPA has refined its members’ obligations into four principles against which they can assess their current policy and practice,” said FPA chair Corinna Dieters.

“Implementation timeframes of the principles allow members sufficient time to put appropriate structure and work place practices in place.”

Dieters said the principles would be mandatory, but any complaints against members would be investigated on a case by case basis.

Concerns about non-compliance brought to the FPA’s attention by members, corporate regulators and consumers will be considered by the association’s Professional Standards and Ethics Committee, she said.

But for the principle considered to be the most important - the requirement to separate the cost of advice from the cost of the investment product - the FPA has said this will not be necessary in all circumstances.

“The implementation guidelines for the principles states that where fees or payments cannot be separately identified or cannot be varied or terminated by the client in agreement with their adviser, they must be disclosed as commission. The FPA believes that the regular disclosure of any ongoing commission is best practice,” Dieters said.

The completed principles are as follows:

1. The cost of financial planning advice should be separately identified as a financial planning advice fee in the Statements of Advice provided by FPA members to clients, and the total fees paid for ongoing advice should be disclosed to clients on a regular basis.

2. Where it is appropriate to recommend a product to a client, all FPA members will undertake the due diligence necessary to offer products which suit the needs of the client and do not bring the industry into disrepute.

3. No remuneration or benefits paid by a FPA Principal Member to one of their financial planners should be biased against or not in the interests of the client.

4. Separate corporate governance arrangements should govern FPA Principal members and all or any related financial services provider and/or entity.

Principles three and four become effective from January 1, 2007.