New conflict rules for advisers
The bar on professional standards in the financial planning industry has once again been raised by tough new rules which seek to eliminate conflicts of interest for advisers.
The rules, released in draft form yesterday, are the third in a series of reforms introduced by the Financial Planning Association (FPA) to clean up the profession.
They follow a code of practice on soft dollar payments and guidelines on rebates and commissions released last year.
The new rules are based around a set of broad, principle based statements, such as that “financial planning advice should be independent”, “FPA members should only offer products which suits the needs of the client” and that “FPA members shall not receive or reward any remuneration or benefits which are biased”.
Examples supplied on how the principles might be interpreted make it clear that remuneration structures that bias advisers to sell in-house products will not be tolerated under the rules.
As revealed exclusively by Money Management last month, the principles also require that adviser commissions be separated out from the price of products and disclosed separately.
Financial planners have been given six months to suggest amendments to the draft rules before they are adopted officially.
FPA board member Sarah Brennan the principles would boost consumer confidence in the quality of financial planning advice.
“It is a demonstration of our member’s commitments to the interests of their clients that the FPA has engaged in three phased process to improve the clarity and transparency of payment and remuneration practices in financial planning and to improve client understanding in this area,” Brennan said.
“Central to this effort to raise professional standards is this focus on remuneration”
FPA draft Principles to Manage Conflicts of Interest:
1) A financial planner will provide a client with clear, concise and comprehensive information so that the client will understand the advice and service being offered and its cost.
2) Financial planning advice should be independent from and not tied to product recommendations.
3) Where it is appropriate to recommend a product to a client, all FPA members should only offer products which suit the needs of the client and do not bring the industry into disrepute.
4) No FPA member shall receive or reward any remuneration or benefits which are biased against or may not be in the interests of the client.
5) A financial planner must disclose to a client any existing or potential financial interest (such as shareholdings or equity entitlements) they, or an entity in which they have an interest, have in the products or platforms they use and/or in their Australian Financial Services (AFS) licensee or related entity.
6) There should be separate corporate governance in place between an AFS licensee and related fund managers and product/platform manufacturers within the same group.
7) FPA members have a responsibility to abide by the FPA principles to address any real or perceived conflict/s of interest.
Recommended for you
Clime’s disposal of advice licensee Madison “needed to happen yesterday”, managing director Michael Baragwanath has told Money Management, as he concludes a severe cost-out period at the business.
As Viola Private Wealth continues on its growth trajectory, the wealth management firm has appointed a seasoned investment professional to be its first chief investment officer.
Financial advisers who wish to implement artificial intelligence in their practices need to undergo a change in their mindset as to how they use technology.
With United Global Capital expected to constitute a substantial portion of CSLR compensation in FY25–26, what has AFCA ruled in its determinations on the company so far?
