Soft dollar incentives still evident

Despite the requirement by the Financial Planning Association (FPA) that their members fully comply with the ‘soft dollar code’ by January 1, 2005, benefit arrangements employed by advisory dealer groups based upon product sales continue to exist.

The Code of Practice on Alternative Forms of Remuneration, issued in draft form jointly by the FPA and the Investment and Financial Services Association (IFSA) back in August 2004, stipulated that members of each body be banned from accepting or offering remuneration methods incorporating free travel and accommodation to conferences that are “volume sales” related.

However, Money Management has secured a document issued by an FPA principal member that shows a dealer group is continuing to use exactly this type of remuneration incentive for its authorised representatives.

In particular, as part of the qualification criteria for its upcoming annual overseas conference, the dealer group in question has two out of three qualifying options in place that rely solely on sales, one rewarding advisers for the amount of funds attracted to investment in specified platforms, and the other rewarding representatives for registered sales in half a dozen specified products.

Furthermore, sales of a badged product directly linked to the dealer group have been assigned the highest weighting in the qualification system in use.

Under the arrangement, advisers earn credit points via each option and receive fully subsidised registration to the conference, which includes twin share accommodation and economy airfares, if they pass a certain credit point level.

Although this evidence shows some FPA members have not complied with the ‘soft dollar code’, the professional body still believes the system is working well.

“We’ve actually found a number of the more overt soft dollar arrangements have quickly withered and disappeared, so that’s encouraging,” an FPA spokesperson said.

The association’s current method of policing its code of conduct is through the signing of an agreement to abide by the codes when memberships are renewed, coupled with the submission of a self-assessment questionnaire regarding the practices employed by the member’s organisation over the preceding 12 month period.

In addition, the FPA conducts onsite member visits through its National Quality Assessment Program to observe firsthand the systems and procedures members have in place.

“The feedback we’re seeing in the market and the change in behaviour of some of our members would indicate, on the whole, that there has been compliance with the codes,” the spokesperson said.