Industry crackdown lays payments bare

Financial planners will face heavy fines of up to $20,000 for failing to adhere to new guidelines on disclosing rebates and commissions, following a two-pronged assault on such payments by the Financial Planning Association (FPA) and the Investment and Financial Services Association (IFSA).

The FPA and IFSA released tough new guidelines on payment and remuneration practices for advisers and product providers last week, with the heads of both associations signalling they will take a hardline approach to ensure the standards are implemented.

Members of both the FPA and IFSA could have their membership cancelled if they fail to implement the new requirements, while FPA members have also been threatened with fines of up to $20,000.

Under the new guidelines, which were flagged by Money Management in August, all payments received by financial planners for recommending clients use a platform or product must be disclosed as ‘commissions’. Advisers are currently required to disclose these payments, but they are often referred to as rebates, which was considered misleading for clients.

Fund managers and platform providers will also have to disclose payments they make to advisers who use their products under the new rules.

“Alleged breaches by our members will be investigated and handled under the FPA’s disciplinary scheme,” FPA chief executive Kerrie Kelly said.

IFSA chief executive Richard Gilbert said he expects fund managers and platforms to take the guidelines seriously, but suspects some groups may shun membership of the association to avoid the guidelines.

“I suppose some fund managers and product providers that aren’t members of IFSA purposely don’t become members of IFSA because they don’t want to be part of the compliance system,” Gilbert said.

FPA head of policy and government relations John Anning said common terminology and higher disclosure standards would allow consumers to better understand what they pay for and raise the image of financial planners.

“We believe the industry itself is better equipped to regulate in these areas given the complexity of these issues,” Anning said.

FPA board member Sarah Brennan, who was on the working party that developed the guidelines, said the tough stance was not an attempt at self-regulation.

“It’s important to note the FPA is not a regulator — that’s not its role. The FPA is a member professional association,” Brennan said.

The new guidelines take effect from January 1, 2005, but members will be given six months after this date to transition into the new disclosure regime, after which time the new rules will be proactively enforced.

The new guidelines come on top of the joint IFSA/FPA code on soft dollar remuneration. The code, released earlier this year, bans some soft dollar payments and requires others to be publicly disclosed.